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NO.  95 


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Author: 


New  York  (State). 
Legislature. 

Title: 

Report  of  the  Special 
Joint  Committee  on... 

Place: 

Albany 

Date: 

1922 


MASTER    NEGATIVE   * 


COLUMBIA  UNIVERSITY  LIBRARIES 
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New  York  (State)     Legislature.    Special  joint  commit- 
tee on  taxation  ancTretrenchmenT, 
...  Report  of  the  Special  joint  committee  on  taxation 

and  retrenchment  submitted  March  1,  1922.     Albany, 

J.  B.  Lyon  company,  printers,  1922. 

383  p.  incl.  tables,  diagrs.     23"". 

At  head  of  title:  Legislative  document  (1922)  no.  72.     State  of  New  York 
Frederick  M.  Davenport,  chairman. 

"Digest  of  laws  of  the  various  states  relating  to  the  methods  of  taxing 
public  utilities.    Prepared  ...  by  C.  Eveleen  Hathaway  and  Ruth  Montgom- 

f  ^^'  fff,',,    *'^^/-F^^r^"^^  section,  New  York  State  library.    Revised  to  Octo- 
ber, 1921    :  p.  313-359. 

\oh  X^-^»t'0"--New  York  (State)  i.  Davenport,  Frederick  Morgan, 

1606-  II.  Hathaway,  C.  Eveleen.    in.  Montgomery,  Ruth.    iv.  Title. 


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Legrislative  Document  (1922) 


No.  72 


STATE  OF  NEW  YORK 


t  1 B  B  A  R  ^ 
SCHOOL  OF  BUSINESS 


REPORT 


OF  THE 


Special  Joint  Committee  on  Taxation 

and  Retrenchment 

Submitted  March  1,  1922 


ALBANY 

J.  B.  LYON  COMPANY,  PRINTERS 

1922 


^>:^H.A.'^.M^*'f^, 


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4^  \ 


Cdmnbta  ®ni»et»tt^ 


LIBRARY 


School  of  Business 


'.iAJH- 


Legrislative  Document  (1922) 


STATE  OF  NEW  YORK 


♦  * 


REPORT 


OF  THE 


No.  72 


Special  Joint  Committee  on  Taxation 

and  Retrenchment 

Submitted  March  1,  1922 


ALBANY 

J.  B-  LYON  COMPANY,  PRINTERS 

1922 


DUS\TaesS 


'  ; 


/ 

^ 


ENABLING  ACTS 


Joint  Resolution  of  Legislature,  January  23,  1919 


Resolved  ( if  the  Assembly  concur ) ,  That  a  joint  committee  of  the  Senate 
and  Assembly  be  hereby  created,  to  consist  of  three  members  of  the  Senate 
Committee  on  Taxation  and  Retrenchment,  who  shall  be  designated  by  the 
Temporary  President  of  the  Senate,  and  three  members  of  the  Assembly  Com- 
mittee on  Taxation  and  Retrencliment,  who  shall  be  designated  by  the  Speaker 
of  the  Assembly,  to  inquire  into  and  investigate  the  subject  of  taxation  and 
to  prepare  and  submit  bills  for  remedial  legislation  in  relation  thereto. 

Resolved,  That  such  committee  is  hereby  authorized  and  directed  to  choose 
from  its  members  a  chairman,  and  is  authorized  to  employ  such  assistants 
as  it  may  deem  necessary  for  the  prosecution  of  its  work;  and  that  such 
committee  may  sit  anywhere  within  the  State,  and  may  take  and  hear  proofs 
and  testimony,  subpoena  witnesses  and  compel  the  production  of  books, 
records,  papers  and  documents,  and  otherwise  have  all  the  powers  of  a 
legislative  committee  provided  by  the  Legislative  Law. 

Resolved,  That  such  committee  shall  report  the  result  of  its  investiga- 
tions to  the  Legislature  on  or  before  March  15,  19 1»,  and  shall  accompany 
such  report  with  such  bills  as  it  may  deem  proper  for  remedial  legislation 
in  relation  to   taxation. 

Resolved,  That  the  sum  of  ten  thousand  dollars  ($10,000),  or  so  much 
thereof  as  may  be  necessary,  shall  be  paid  for  expenses  of  such  committee 
from  the  contingent  fund  available  by  appropriation  for  joint  legislative 
investigating  committee  expenditures,  upon  vouchers  audited  and  approved 
as  prescribed  by  law. 

Albany,  N.  Y.,  Jcmwiry  23,  1919. 


Joint  Resolution  of  Legislature,  January  18,  1921 

Resolved  (if  the  Assembly  concur).  That  the  joint  legislative  committ^ 
appointed  pursuant  to  the  resolution  of  this  body  adopted  January  23,  1919, 
to  inquire  into  and  investigate  the  subject  of  taxation  and  to  prepare  and 
submit  bills  for  remedial  legislation  in  relation  thereto,  and  continued  by 
joint  resolution  adopted  April  16,  1920,  be  further  continued  with  all  the 
powers  and  duties  heretofore  conferred  and  imposed  upon  such  committee, 
and  that  the  time  for  it  to  make  its  final  report  to  the  Legislature  be 
extended  to  March   1,   1922,  and  be  it  further 

Resolved,  That  vacancies  in  the  membership  of  such  committee  from  the 
Senate  be  filled  by  the  Temporary  President  of  the  Senate  and  from  the 
Assembly  by  the  Speaker  of  the  Assembly,  and  be  it  further 

Resolved,  That  the  sum  of  ten  thousand  dollars,  or  so  much  thereof  as 
may  be  necessary,  be  and  hereby  is  appropriated  from  the  contingent  fund 
of  the  Legislature  for  the  necessary  expenses  incurred  and  to  be  incurred 
by  said  committee  upon  vouchers  approved  and  audited  according  to  law. 

Albany,  N.  Y.,  January  18,  1921. 

[3] 


m 


SPECIAL  JOINT  COMMITTEE  ON  TAXATION  AND 

RETRENCHMENT 


Of  the  Senate 

Frederick  M.  Davenport,  of  Oneida,  Chairman 
John  J.  Boylan,  of  New  York 
Frederick  W.  Kavanaugh,  of  Saratoga 

Of  the  Assembly 

Franklin  W.  Judson,  of  Monroe,  Vice-Chairman 
Simon  B.  Van  Wagenen,  of  Ulster 
Michael  E.  Reiburn,  of  New  York 

[5] 


LETTER  OF  TRANSMISSION 


1 1 

1  N 


STAFF 

8ecreta/ry  to  the  Committee  and  Chief  of  Research  Staff 

Robert  Murray  TTatg 

Research  Staff 
Frederick    C.    Mills 
Luther  Gulick 
Fred  Rogeks  Faikchild 
Mabel  !N^ewcomer 
Donald  H.  Davenport 

Counsel  < 

Robert  C.  Gumming,  Albany,  N.  Y. 
John  C.  Davies,  Camden,  !N.  Y. 
Thomas  Reed  Powell,  New  York  City 
Charles  J.  Tobin,  Albany,  iN".  Y. 
Joseph  F.  Chamberlain,  New  York  City. 

Special  Advisers 
Edwin  R.  A.  Seligman 
Charles  J.  Bullock 
Delos  F.  Wilcox 

Cleric 
Gerald  G.  Casey,  Utica,  N.  Y. 

Official  Stenographer 
John  K.  Marshall,  New  York  City 

[6] 


March  1,  1922. 

To  the  Senate  and  Assembly  of  the  State  of  New  York: 

The  results  disclosed  by  the  accompanying  report  upon  the 
tax  system  of  the  State  of  New  York  are  somewhat  disconcerting. 
Although  perceptible  progress  has  been  achieved  during  the  past 
few  years,  it  is  evident  that  many  far-reaching  changes  must  yet 
be  made  before  the  State  can  be  said  to  have  a  consistent,  well- 
balanoed,  adequate  and  equitable  system  of  taxation. 

It  seems  not  only  that  we  have  a  tax  system  which,  in  many 
of  its  features,  is  a  mass  of  intricacy  and  difficult  and  expensive 
administration,  but  it  appears  also  that  we  have  developed  great 
inequalities  of  burden  as  between  different  classes  of  persons  and 
property.  When  the  taxes  are  reduced  to  a  common  measure, 
we  find  that  there  are  some  classes  of  business  which  are  bur- 
dened far  more  than  others ;  we  find  great  inequalities  and  injus- 
tices of  assessment  of  taxes  all  over  the  State ;  we  find  corporations 
both  within  and  without  the  same  class  which  are  being  taxed 
very  unequally;  we  find  that  real  property  in  the  State  is  being 
much  overtaxed  proportionately,  while  other  classes  of  persons 
and  property  are  getting  away  practically  scot-free. 

The  Committee  has  sought  to  outline  a  program  which  will 
equalize  and  simplify  taxation  within  the  State.  Reduction  is 
recommended  in  certain  cases  where  the  facts  indicate  that  the 
present  burden  is  grossly  unequal  and  oppressive.  We  recog- 
nize, of  course,  that  a  decrease  in  the  aggregate  of  taxes  levied 
must  depend  upon  the  success  of  the  efforts  to  achieve  economies 
in  administration  and  decreases  in  appropriations,  not  only  on 
the  part  of  the  state  government  but  particularly  upon  the  part 
of  local  governments  throughout  the  commonwealth. 

The  Committee  has  sought  to  make  this  piece  of  work  a  real 
application  of  scientific  and  statistical  method.  We  believe  that 
the  method  herein  disclosed  should  be  employed  in  the  solution 
of  tax  adjustments  and  difficulties  throughout  the  country.  There 
is  no  field  in  which  the  method  needs  more  to  be  employed. 
There  is  no  public  issue  more  important  to  the  American  people, 
or  to  the  world  for  that  matter  just  now,  than  the  issue  of  a 
more  equal  and  less  oppressive  burden  of  taxation.  The  only 
way  to  confront  the  issue  is  in  terms  of  things  as  they  are,  in 
fact  and  figure. 

Even  if  the  simple,  practical  methods  suggested  by  this  report, 
growing  out  of  the  long  experience  of  the  State,  as  well  as  out  of 
thorough  statistical  inquiry,  are  adjusted  by  the  Legislature  to 

m 


8 


the  satisfaction  of  the  people,  much  remains  to  be  done.  Forest 
and  mineral  lands  taxation,  the  taxation  of  private-car  companies, 
the  just  rate  and  method  of  taxing  stock  transfers,  the  further 
betterment  of  the  administration  of  the  inheritance  tax ;  these  and 
other  problems  yet  remain  to  be  solved. 

But  we  think  it  may  justly  be  said  that  if  this  State  takes 
the  plain  steps  marked  out  by  tbis  report,  no  section  of  the 
American  people  will  have  less  cause  for  complaint  with  respect 
to  inequality  and  injustice  of  tax  burden  than  the  people  of  the 
State  of  New  York,  and  no  state  of  the  United  States  will  have 
advanced  further  along  the  path  of  sound  taxation  and  finance 
than  the  State  of  'New  York. 

This  Committee  has  been  constantly  supported  in  its  work  by 
a  loyal  and  able  staff.  The  brunt  of  the  burden  of  scientific 
investigation  has  been  borne  by  Robert  M.  Haig,  chief  of  the 
research  staff,  and  by  Frederick  C.  Mills,  chief  statistician. 
These  men  hold  positions  in  finance  and  statistics  in  the  School  of 
Business  of  Columbia  University.  Professors  Edwin  R  A.  Selig- 
man  of  Columbia,  Charles  J.  Bullock  of  Harvard,  Fred  R.  Fair- 
child  of  Yale,  and  Mabel  Newcomer  of  Yassar,  and  Messrs.  Delos 
W.  Wilcox  and  Donald  H.  Davenport,  have  been  skilled  and  wel- 
come advisers  and  investigators.  The  committee  has  had  the 
expert  legal  counsel  of  Robert  C.  Cumming,  Thomas  Reed  Powell, 
John  C.  Davies,  Joseph  P.  Chamberlain  and  Charles  J.  Tobin, 
and  the  administrative  advice  of  Luther  H.  Gulick,  the  head  of 
the  National  Institute  of  Public  Administration. 

To  the  Merchants'  Association  of  New  York,  whic'h  furnished 
the  committee  with  comfortable  quarters  for  many  conferences, 
and  to  the  authorities  of  Columbia  University  who  furnished 
offices  for  the  conduct  of  the  survey,  to  the  Secretary  of  the 
Treasury  of  the  United  States  and  the  Federal  Bureau  of 
Internal  Revenue  which  disclosed  to  us  the  Federal  sources  of 
information,  to  the  various  departments  of  our  State  government 
which  generously  and  effectively  co-operated,  to  the  great  number 
of  corporate  and  individual  taxpayers  throughout  the  State  who 
have  responded  freely  and  fully  to  rather  intricate  and  vol- 
uminous questionnaires,  we  desire  to  express  the  appreciation  of 
the  State  as  well  as  our  own  sense  of  indebtedness  and  gratitude. 

(Signed)     FREDERICK  M.  DAVENPORT,  Chairman, 
FRANKLIN  W.  JUDSON, 
JOHN  J.  BOYLAN, 
FREDERICK  W.  KAVANAUGH, 
SIMON  B.  VAN  WAGENEN, 
MICHAEL  E.  REIBURN. 


1922  REPORT 


OF  THE 


SPECIAL  JOINT  COMMITTEE  ON  TAXATION  AND  RE- 
TRENCHMENT TRANSMITTED  TO  THE  LEGISLATURE 
MARCH  1,  1922 


[9] 


TABLE  OF  CONTENTS 


PAGE 

Summary  of  Recommendations 15 

PART  ONE 

A  Critical  Survey  of  the  Revenue  System  of  the  State  of  New  York 

Introductory 19 

The  Cost  of  Government 24 

The  ten-year  increase 24 

The  total  tax  burden  and  the  State's  share 25 

The  direct  tax  burden 27 

Comparisons  with  increases  in  wealth  and  assessed  values 27 

The  increase  of  public  debts 29 

The  increase  in  the  true  tax  rate 29 

Per-capita  state  expenditure  and  commodity  prices 35 

Surpluses  and  deficiencies 37 

Receipts  from  "  direct  "  and  "  indirect  "  sources 39 

Local  Finance 40 

Miscellaneous  suggestions  regarding  local  finance 40 

Organization  and  efiiciency 40 

Central  purchasing 41 

The  tax  calendar 41 

Municipal  bonding 41 

The  Personal-Property  Tax 42 

The  facts  regarding  personal-property  assessments 42 

Complete  exemption  of  personal  property  recommended 45 

The  Real-Estate  Tax 47 

The  burden  on  real  estate 47 

The  growth  of  the  tax  rate  on  real  estate 47 

The  tax  rate  as  an  indication  of  real  burden 49 

The  real-estate  tax  as  a  business  tax 52 

The  relation  of  real-estate  taxes  to  net  income  in  real-estate  ventures ...  53 

The  relation  of  real-estate  taxes  to  the  net  income  of  farmers 54 

The  relation  of  real-estate  taxes  to  the  net  income  of  other  businesses .  .  56 

The  burden  on  home-owners  and  rent-payers 57 

Conclusions  and  recommendations  with  respect  to  the  real-estate  burden.  57 

The  administration  of  the  real-estate  tax 58 

Exemptions 62 

Exemptions  from  the  property  tax 62 

The  facts  regarding  property-tax  exemptions 62 

Conclusions  and  recommendations  regarding  property-tax  exemptions .  .  66 

Income  tax  exemptions 67 

The  personal  exemptions 67 

Tax-exempt  interest  on  government  securities 67 

The  Personal  Income  Tax 72 

The  relation  of  the  state  income  tax  to  the  federal  act 72 

The  personal  exemptions 73 

The  minimum  income  tax 74 

Change  in  scope  and  application 75 

Test  of  residence 75 

Net  losses 76 

Appreciations  in  the  value  of  gifts 76 

The  closed  transaction 77 

Miscellaneous  minor  amendments 77 

[11] 


12 


Table  of  Contents 


Table  of  Contents 


13 


PAGE 

The  Taxes  on  Financial  Institutions 78 

The  development  of  the  present  method  of  taxing  banks 79 

Results  of  the  statistical  investigation 82 

National  banks 83 

State  banks 84 

Trust  companies 84 

Investment  companies 84 

Savings  banks 85 

The  crisis  caused  by  the  Richmond  decision 86 

Conclusions 89 

The  taxes  on  Insurance  Companies 90 

The  Taxes  on  Public  Utilities 92 

History  of  pubUc-utiUty  taxes  in  the  State 92 

The  present  system 95 

Defects  of  the  present  system 96 

Lack  of  certainty 96 

Arbitrariness 98 

Lack  of  simplicity 99 

The  cost  of  complexity 100 

Results  of  the  statistical  inquiry 102 

What  parts  of  the  present  system  may  be  discarded? 106 

The  special-franchise  tax 106 

The  state  franchise  taxes ' 107 

The  tax  on  tangible  personalty 108 

The  tax  on  real  estate 108 

Conclusion 109 

A  plan  for  the  taxation  of  public  utilities 109 

General  considerations 110 

Practice  in  other  states Ill 

Comparison  of  possible  bases 113 

A  gross-net  tax  recommended 116 

Relationship  of  proposed  gross-net  tax  to  special-franchise  tax 117 

Definition  of  gross  and  net  income 117 

Illustrative  rates  of  the  proposed  gross-net  tax 118 

Interstate  apportionment 119 

Fluctuation  of  revenue 120 

The  Taxes  on  Private-Car  Companies 120 

The  franchise  Tax  on  Income  of  Mercantile  and  Manufacturing  Corporations . . .  121 

The  rate  of  the  tax 121 

The  form  of  the  tax 122 

Deduction  of  net  losses  of  other  taxable  years 122 

The  apportionment  of  interstate  income 122 

The  Taxes  on  Unincorporated  Business 126 

The  present  situation 126 

Effect  of  the  federal  taxes  on  business  profits 126 

Tax  on  the  income  of  unincorporated  business  recommended 127 

Form  of  the  proposed  tax  on  unincorporated  business 128 

Rate  of  the  proposed  tax  on  unincorporated  business 128 

Estimate  of  yield 129 

Division  of  yield 129 

The  Taxes  on  Motor  Transportation 129 

What  taxes  should  be  paid  by  users  of  the  road? 130 

Motor  traffic  and  road  costs 134 

The  taxes  in  New  York 139 

Motor- vehicle  taxes  of  other  states 140 

Revenue  from  New  York  motor- vehicle  tax 141 

Adequacy  of  the  New  York  taxes 141 

Changes  in  character  and  rates  of  motor- vehicle  taxes  recommended 150 

Gasoline  tax  recommended 151 

Distribution  of  the  yield  of  motor-vehicle  taxes 152 

Effect  of  the  proposals 153 

The  Tax  on  Transfers  of  Stock 153 


PAGE 

The  Taxes  on  Natural  Resources 156 

Mine  taxation 156 

Mineral  resources  of  New  York  State 156 

Method  of  taxing  mines  in  New  York  State 157 

Results  of  local  assessment 158 

Taxation  of  mines  in  other  states 158 

Conclusion 159 

Forest  taxation 159 

Forests  and  lumber  industry  in  New  York  State 159 

Forest  taxation  in  other  states 160 

Local  assessment  of  forest  land  in  New  York  State 161 

Laws  for  special  taxation  of  forests  in  New  York 161 

Forest-products  taxes  in  other  states 162 

Forest-tax  law  of  New  York  ineflFective  in  operation 163 

Conclusion 163 

The  Administration  of  the  Inheritance  Tax 165 

Present  practice 165 

Criticisms  and  suggestions 166 

Miscellaneous 168 

The  apportionment  of  state  taxes  to  the  localities 168 

SimpUfication  and  codification  of  the  tax  law 168 

The  need  for  adequate  statistics 169 

PART  TWO 

A  Statistical  Analysis  of  the  Tax  Burden  on  Corporations  in  the  State  of 
New  York 

Object  and  Scope 173 

Object  of  the  investigation 173 

Scope  of  study  and  sources  of  information 174 

Simimary  of  Annual  Taxes  paid  by  Corporations 176 

General  Considerations 179 

The  Burden  of  Taxes  on  Business  Corporations 182 

The  Burden  of  Taxes  on  Financial  Institutions 183 

Comparison  of  financial  institutions  and  business  corporations 190 

The  Burden  of  Taxes  on  Public  Utilities 196 

Method  of  study 201 

Relation  of  income  to  net  worth 202 

Relative  tax  biu-den  within  the  public-utility  groups 214 

Relation  of  taxes  to  gross  earnings 217 

Relation  of  taxes  to  operating  expenses 223 

Relation  of  total  taxes  to  net  income 232 

Relation  of  state  taxes  to  net  income 239 

Relation  of  local  taxes  to  net  income 249 

Comparison  of  pubUc  utiHties  and  business  corporations 256 

Relation  between  taxes,  net  income  and  gross  income  of  public  utilities 261 

The  Burden  of  Taxes  on  Insurance  Companies 264 

Expenses  Involved  in  Pajdng  Taxes  and  Contesting  Assessments 269 

Statistical  Appendices  to  Part  II 271 

GENERAL  APPENDICES 

A.  Digest  of  Laws  of  the  Various  States  Relating  to  Methods  of  Taxing  PubUc 

Utmties 313 

B.  Data  for  Estimating  the  Yield  of  Proposed  Taxes  on  Public  Utilities 360 

C.  Text  of  Proposed  Bills 363 

Proposed  Unincorporated-Business  Tax  Law 363 

Proposed  Public-Utility  Tax  Law 371 

Proposed  Constitutional  Amendment  Regarding  Debt  Limitation 382 

Proposed  Constitutional  Amendment  Regarding  the  Taxation  of  Public 
Utilities 383 


SUMMARY  OF  RECOMMENDATIONS 


The  Committee  submits  herewith  sixteen  definite  recommenda- 
tions which,  it  believes,  deserve  immediate  consideration  by  the 
Legislature.  In  our  opinion  the  program  here  presented  is  a 
thoroughly  practical  one  which  flows  naturally  and  inevitably 
from  the  facts  developed  in  the  course  of  the  investigations  we 
have  conducted. 

The  Committee  recommends: 

(1)  That  the  remnants  of  the  personal  property  tax  be  com- 
pletely abolished  {cf.  infra,  p.  46)  ; 

(2)  That  the  revenues  of  the  State  be  so  adjusted  as  to  elimi- 
nate at  the  earliest  possible  moment  the  direct_ state  tax  on  real 
estate  (c/.  infra,  p.  57) ; 

(3)  That  a  thorough  study  be  made  of  local  revenues  and  ex- 
penditures through  some  state  agency  with  a  view  to  promoting 
retrenchment  and  efficiency  and  that,  if  such  a  survey  reveals  the 
necessity  and  wisdom  of  such  action,  the  revenues  of  the  localities 
be  so  readjusted  as  to  lessen  still  further  the  burden  on  real  estate 
now  borne  by  the  farmer,  the  business  man,  the  home-owner  and 
the  rent-payer; 

(4)  That  a  constitutional  amendment  be  submitted  making 
possible  a  thorough-going  reform  of  real-estate  assessments 
through  the  establishment  of  larger  tax  districts,  officered  by 
skilled  assessors,  functioning  under  a  larger  degree  of  central 
supervision  and  control  (c/.  infra,  p.  59)  ; 

(5)  That  statutes  be  passed  modifying  the  assessment  and 
collection  machinery,  so  far  as  this  can  be  done  even  before  the 
enactment  of  the  constitutional  amendment  recommended  in  the 
preceding  paragraph;  particularly,  with  respect  to  the  central 
valuation  of  the  property  of  public  utilities  {cf.  infra,  p.  108), 
and  the  centralization  of  the  collection  of  school  taxes  {cf.  infra, 
p.  60)  ; 

(6)  That  the  real  estate  of  certain  cemetery  companies,  and 
certain  other  property  now  exempt,  be  subjected  to  taxation 
{cf.  infra,  p.  67)  ; 

(7)  That,  in  case  section  5219  of  the  United  States  Revised 
Statutes  is  amended  in  the  manner  proposed,  a  statute  be  passed 
substituting  for  the  present  taxes  on  banks  (except  those  on  sav- 
ings banks,  which  would  remain  as  at  present)  a  tax  on  the  basis 
of  net  income  at  a  rate  of  probably  6  per  cent  {cf.  infra,  p.  89),  or 

That,  in  case  the  Congress  fails  to  pass  promptly  the  proposed 

[15] 


! .  ■! 


16 


amendment  to  section  5210,  a  statute  be  passed,  levying  a  rate 
of  1  per  cent  on  the  value  of  ^^  other  moneyed  capital  in  the  hands 
of  individuals,''  which  action  will  serve  to  validate  the  present 
taxes  on  national  banks  by  a  method  undesirable  from  certain 
points  of  view  but,  nevertheless,  apparently  necessary  unless 
national  banks  are  to  evade  their  fair  share  of  the  tax  burden 
(c/.  infra,  p.  90)  ; 

(8)  That  a  statute  be  passed  abolishing-  the  class  of  "Invest- 
ment Companies,"  submitting  "  Morris  Plan  "  banks  to  taxation 
on  the  same  basis  as  other  banks  and  taxing  the  remaining  so- 
called  "Investment  Companies"  under  section  9-a,  the  corpora- 
tion income  tax  {cf.  infra,  p.  89)  ; 

(9)  That  there  be  substituted  for  the  present  taxes  on  insurance 
companies  (except  those  on  mutual  companies  which  should  re- 
main as  at  present)  a  tax  on  the  basis  of  net  income  at  a  rate  of 
probably  6  per  cent  {cf.  infra,  p.  91)  ; 

(10)  That  a  constitutional  amendment  be  submitted  modify- 
ing ihe  debt  limitation  in  such  a  manner  as  to  make  it  practicable 
to  abandon  the  taxation  of  the  "special  franchises"  of  public 
utilities  as  "real  estate"  {cf.  infra,  p.  107); 

(11)  That  a  "gi^oss-net"  tax  be  substituted  for  the  present 
complicated  series  of  state  taxes  on  public  utilities  {cf.  infra, 
p.  116); 

(12)  That  the  rate  of  the  income  tax  on  manufacturing  and 
mercantile  corporations  be  increased  from  4l^  to  probably  6  per 
cent  {cf.  infra,  p.  121) ; 

(13)  That  a  statute  be  passed  establishing  an  income  tax  on 
the  profits  of  unincorporated  business  at  a  rate  of  probably  5  per 
cent  {cf.  infra,  p.  128)  ; 

(14)  That  certain  minor  changes  be  made  in  the  personal 
income  tax  law  {cf.  infra,  p.  72)  ; 

(15)  That  statutes  be  passed  increasing  to  a  reasonable  extent 
motor-truck  license  fees,  simplifying  license  fees  on  all  motor 
vehicles,  and  eventually  establishing  a  gasoline  tax  at  a  reason- 
able rate  per  gallon  {cf.  infra,  p.  151)  ;  and 

(16)  That  the  tax  on  stock  transfers  be  extended  to  include 
transfers  of  bonds  {cf.  infra,  p.  155). 

In  the  course  of  the  discussion  of  the  body  of  the  report,  the 
Committee  makes  numerous  other  suggestions.  The  recommenda- 
tions listed  above,  however,  are  proposals  the  consideration  of 
which,  in  the  opinion  of  your  Committee,  can  be  long  postponed 
only  at  the  cost  of  grave  risk  to  the  true  interests  of  the  State. 
They  are  the  obvious  next  steps  toward  rational  tax  reform. 


i 


PART  ONE 

A  CRITICAL  SURVEY  OF  THE  REVENUE  SYSTEM  OF 

THE  STATE  OF  NEW  YORK 


[17] 


g^ 


iBMBm 


Introductory 


f' 


Your  Committee  has  attempted  to  make  both  a  general  survey 
on  the  tax  situation  in  the  State  as  it  now  stands  after  the 
important  legislation  of  recent  years,  and  an  intensive  study  of 
certain  portions  of  the  system  which  seemed  to  be  in  greatest  need 
of  change.  A  progi-am  is  pi^esented  which  will  equalize  and 
simplify  taxation  in  the  State.  Reduction  of  taxes  is  recom- 
mended in  certain  cases  where  the  facts  show  that  the  present 
burden  is  imequal  and  oppressive.  A  decrease  in  the  aggi*egate 
of  taxes  levied,  obviously  must  depend  upon  the  succt^ss  of  efforts 
to  achieve  economical  administration  and  reductiousf  in  appro- 
priations. 

The  system  as  it  now  exists  is  the  result  of  important  changes 
made  in  the  past  few  yeai-s —  changes  which  include  such  funda- 
mental action  as  the  establishment  of  the  persional  income  tax 
and  the  tax  on  the  business  incomes  of  mercantile  and  manu- 
facturing corporations.  Indeed,  the  general-property  tax  has 
been  almost  completely  abandoned  except  for  the  real-estate  tax 
which,  of  course,  remains  the  main  source  of  local  revenue.  It 
was,  we  believe,  the  object  of  the  Legislature,  in  continuing  the 
life  of  this  Committee,  to  siecure  accurate  information  regarding 
the  shortcomings  of  the  system  of  taxation  as  it  now  stands  after 
the  recent  changes. 

In  1920  the  state  and  local  governments  in  ^ew  York  spent  more 
than  twice  what  they  spent  in  1910.*  Most  of  this  increase  is 
chargeable  to  the  localities  which  collect  almo^  all  of  their  revenue 
from  taxes  on  real  property.  So  it  comes  about  that  the  burden  of 
this  swollen  expenditure  has  fallen  largely  upon  real  estate,  the 
true  rate  of  tax  on  the  full  value  of  such  property  having  increased 
in  ten  years  from  1%  per  cent  to  more  than  2^^  per  cent.  Since 
this  tax  is  paid  by  businesses  owning  real  estate  and  by  busi- 
nesses owning  franchise  values  classed  as  real  estate,  this  is  a 
burden  upon  business  as  well  as  upon  individuals.     Personal 


*Cf.  infra,  p.  24. 


119] 


20 


21 


i 


Lv  i    * 


property,  wtich  comprised  one-fourth  of  the  tax  base  in  1866, 
had  shrunk  to  one-twentieth  of  the  base  in  1910  and  is  now  in 
1920  approaching  the  vanishing  point,  making  up  only  one- 
tiftieth  of  the  taxable  property.  Eeal  estate  itself  has  been  made 
subject  to  liberal  exemptions  which  have  whittled  away  a  sub- 
stantial portion  of  the  base.  Certainly  when  the  rate  stands  at 
an  average  level  of  2%  per  cent,  an  increase  of  40  per  cent  in 
ten  years,  the  time  has!  come  to  take  thought  as  to  whether  our 
tax  system  is  not  pressing  with  undue  severity  upon  the  owners 
of  real  estate. 

The  personal  income  tax  is  being  successfully  administered  and 
appears  to  demand  only  minor  alterations. 

One  of  the  major  problems  of  the  committee  related  to  the 
group  of  special  taxes  on  business  corporations.  After  many 
years  of  virtual  exemption,  mercantile  and  manufacturing  corpo- 
rations are  now  paying,  in  addition  to  real-estate  taxes,  a  tax  of 
four  and  one-half  per  cent  of  their  net  income.  Other  businesses 
are  taxed  on  varying  bases  at  varying  rates.  In^irance  companies 
pay  a  tax  on  gi*oss  premiums.*  Banks,  in  addition  to  the  tax  on 
their  real  estate,  pay  a  tax  on  either  their  shares  of  stock  or  on 
a  bookkeeping  figure  representing  approximately  their  investment 
in  the  busine6S.f  Public  utilities  pay  "^  general  '^  franchise  taxes, 
"  special "  franchise  taxes  and  "  additional  "  franchise  taxes,  etc., 
after  paying  taxes  on  certain  real  and  personal  property.:!:  The 
committee  set  out  to  determine  what  these  various  special  taxes 
amounted  to  and  precisely  how  the  burden  was  distributed  among 
the  various  business  interests  of  the  State. 

The  general  evolution  in  this  State  has  been  in  the  direction  of 
the  development  of  a  system  which  consists  in  the  main  of  the 
following  elements: 

1.  A  tax  on  personal  incomes,   part   of  which   is  at   present 

shared  with  the  localities; 

2.  A  tax  on  real  estate,  in  rem,  without  regard  to  the  owner- 

ship, whether  it  be  by  individuals  or  by  bus/iness  organ- 
izations, which  serves  to  supply  the  bulk  of  local  revenues, 
and 


3.  A  series  of  taxes  on  businesses,  consisting  of  a  tax  on  corpo- 
rate incomes  of  business  corporations  generally,  shared 
with  the  localities,  a  tax  on  certain  types  of  business 
income  of  non-resident  individuals,  shared  with  the 
localities,  a  series  of  special  taxes  on  public  utilities, 
banks,  insurance  companies),  etc.,  some  of  which  (such  as 
the  special  franchise  portion  of  the  public  utility  tax  and 
the  tax  on  shares  of  state  and  national  banks)  are  now  an 
important  part  of  the  local  assessment  base. 

There  are  other  important  taxes  such  as  the  inheritance  tax, 
the  stock-transfer  tax,  and  the  tax  on  motor  vehicles,  but  the 
main  structure  is  that  outlined  above.  In  the  report  of  the  com- 
mittee, submitted  last  year,*  a  table  was  presented  summarizing 
the  main  provisions  of  the  tax  laws  of  the  State  and  it  is  not 
necessary  to  reprint  this  table  here.  However,  in  order  to  make 
clear  the  complicated  manner  in  which  the  revenues  are  collected 
and  distributed  a  chart  (Graph  1)  has'  been  prepared  and  is 
presented  on  page  22.  An  examination  of  this  chart  will  reveal 
the  relative  importance  of  the  various  elements  in  the  present 
system  as  well  as  the  manner  in  which  the  administration  is 
delegated  and  the  yield  distributed. 

Basing  its  action  upon  an  elaborate  statistical  aiialysis,t  the 
Committee  has  drawn  up  a  comprehensive  plan  for  reorganizing 
the  present  chaotic  hodge-podge  of  business  taxes  (group  3  above). 
This  plan  forms  the  core  of  the  Committee's  program.  It  simpli- 
fies the  entire  procedure.  It  provides!  a  method  of  removing  the 
gross  inequalities  in  the  taxes  borne  by  different  types  of  business 
and  by  businesses  within  each  class.  It  makes  the  total  exemption 
of  remaining  vestiges  of  personal  property  a  rational  step. 
Finally,  it  offers  the  possibility  of  relieving  real  estate  of  its 
unenviable  position  as  the  sole  elastic  element  in  the  tax  system. 

In  addition  the  Committee  has  studied  the  operation  of  the 
several  miscellaneous  sources  of  state  revenue  and  submits  specific 
recommendations  relating  to  the  motor-vehicle  taxes,  the  stock- 
transfer  tax  and  several  other  items. 


*  Cf.  infra,  p.  90. 

t  Cf.  infra,  p.  79  et  »eq. 

t  Cf.  infra,  p.  95. 


♦  Taxation  section,  p.  17  ( insert ). 
T  Cf.  infra,  Part  II.  p.  173  a  seq. 


22 


23 


1  i. 


X 


o 


O 
CO 

u 
o 

M 


a 


111  formulating  its  program  the  Committee  has  attempted  to 
keep  in  mind  the  remote  as  well  as  the  immediate  interests  of 
the  State.  The  definite  program  submitted*  should  be  adopted 
not  merely  bt^cause  of  the  value  of  the  results  which  will  at  once 
be  achieved  through  its  establishment  but  also  because  of  what  it 
makes  possiWe  in  years  to  come.  Many  changes  which  the  Com- 
mittee considers  eminently  sound  and  desirable  are  definitely 
blocked  so  far  as  immediate  action  is  concerned  by  insuperable 
legal  and  financial  obstacles.  It  has  been  our  aim  to  recommend 
only  such  changes  as  promise  substantial  improvement  from  both 
the  long-time  and  the  short-time  points  of  view.  The  adoption 
of  the  program  will,  we  believe,  both  provide  a  measure  of 
immediate  relief  and  prepare  the  ground  for  further  reform  in 
the  direction  of  further  simplification  and  equalization. 

*  Cf.  tvtia,  r.  15. 


25 


iii 


The  Cost  of  Government 

The  ten-year  increase.—  The  total  per-capita  cost  of  federal, 
state  and  local  government  for  a  resident  of  the  State  of  New 
York  increased  170  per  cent  from  1910  to  1920.  In  1910  the  per- 
capita  cost  of  all  government  for  a  JS^ew  York  resident  was 
$35.19;  in  1920  it  was  $94.89,  an  increase  of  $59.70.  By  far 
the  largest  factor  in  this  increajse  is  the  tremendous  growth  of 
federal  expenditures  for  the  army,  the  navy,  the  public  debt 
and  for  other  activities  assumed  at  the  time  of  the  war  and  con- 
tinued through  1920.  As  a  result  of  these  war  expenditures,  the 
cost  per  capita  of  the  federal  government  in  1920  shows  an 
increase  of  527  per  cent  over  1910,  while  the  per-capita  cost  of 
the  state  government  increased  115  per  cent  and  the  increase  in 
the  per-capita  cost  of  city,  county,  town  and  village  government, 
including  schools,  increased  76  per  cent. 

The  basis  of  these  computations  is  indicated  in  Table  1. 

TABLE  1* 
Governmental  Expenses,  1910  and  1920 


1910 

1920 

Per-capita 
increase 

Amount 

Per 
capita 

Amount 

Per 

capita 

Amount 

Per 
cent 

United  States 

$639,502,470 
38,332,010 

219,000,000 

$6  Of) 
4  21 

24  03 

$4,608,531,125 
94,100,072 

438.500,000 

$43  60 
n  06 

42  23 

$36  65 
4  85 

18  20 

New  York  State 

Local     government     in 
New  York  State .... 

527 
115 

76 

Total 

$35  19 

$94  89 

$59  70 

170 

Due  to  the  presence  of  deficits  and  surpluses,  the  per-capita 
figures  for  taxes  and  other  revenues  differ  somewhat  from  the 
expense  figures  shown  in  Table  2. 

Qf  !♦  V^^  ^*"'"®*  H^  ^^  **^i^"  ^  *°**  ?  ^'■®  ^^"^^  "P^^^  *^e  following  chief  sources:  The  United 
States  Treasury  Departments  annual  Combined  Statement  of  Receipts,  Disbursements,  Balances, 
StVot  *  u  ^f^  **iv^®  ^^^^^  t^l  ^¥  federal  government,  except  for  the  population  figures 
»?^w^7/^^r"  ^'Ti?"^  ''^^^''^^  The  figures  for  the  New  York  State  government  are  from  the 
Report  of  the  ComptroUar  The  figures  for  local  government  are  partially  estimated  as  complete 
data  were  not  collected  for  1910  and  are  not  yet  available  for  1920.  The  estimates  are  ba^ 
y^*?fJ  IfJ/^^R  "^  ^*  ^t^t  ^??  Commisnon,  the  Financial  Statistics  of  Cities,  published  by  the 
??^J^/.  *m!.  Vf®*"  A***\^'^"'''/''^  ^^^  ^^^  Comptroller's  Special  Rephrt  on  Municipal 
Accounts  No  attempt  has  been  made  m  these  computations  to  reconcile  the  differing  fiscal 
years  or  to  adjust  population  figures  to  the  middle  of  the  fiscal  periods,  as  it  was  felt  that  such 
the  reTuH  ^^^^^  ^°^^^  ^erve  to  compUcate  the  computation  without  materially  changing 

«.^I^f*TJi°'"!^'„V*'*'"®  °^*^®  ^®'^®''*^  ^.'^'''^®'^  is  computed  on  the  simple  per-capita  basis,  which  is 
?n^irh!S  L  *  ^K  ^""^^  approxunation.  If  it  were  possible  to  calculate  exactly  N^w  York's 
contribution  to  the  federal  treasury,  the  figures  would  probably  be  perceptibly  larger. 

[24] 


TABLE  2 
Governmental  Revenues,  1|910  and  1920 


1910 

1920 

Per  capita 
increase 

Amount 

Per 
capita 

Amount 

Per 
capita 

Amount 

Per 
cent 

United  States 

$615,996,969 
37,905,877 

218,000,000 

$6  70 
4  16 

23  92 

$5,687,712,848 
115,678,480 

436,500,000 

$53  80 
11  14 

42  03 

$47  10 
7  17 

18  11 

New  York  State 

Local    government    in 
New  York  State 

703 
181 

76 

local 

■ __ 

$34  78 

$106  97 

$72  19 

208 

The  total  tax  burden  and  the  State's  share.—  The  great  con- 
fusion in  the  public  mind  regarding  cost  of  government  and  the 
relation  of  federal,  state  and  loeal  finances  necessitates  the 
presentation  of  certain  general  facts. 

Tables  1  and  2  show  that  the  per^apita  burden  of  government 
for  residents  of  the  State  of  ¥ew  York  in  1920  was  about  $100.* 
This  means  that  the  average  family  is  paying,  directly  or 
indirectly,  to  the  federal,  state  and  local  governments  in  the 
neighborhood  of  $500  a  year,  in  return  for  the  services  of 
government. 

A  second  fact  brought  out  clearly  in  tb?  above  figures  is  that 
about  one-half  of  the  present  burden  cf  government  for  residents 
of  the  State  of  New  York  consisfts  of  pavments  to  the  federal 
government.  The  cost  of  all  the  functions  of  the  state  govern- 
ment, of  the  city  governments,  town  governments,  county  govern- 
ments, village  governments,  and  public-school  systems  in\he  State 
of  mw  York  altogether  amounted  in  1920  to  a  sum  rou<rhly 
equivalent  to  :Nrew  York's  share  of  the  federal  budget.  ^ 

The  division  as  between  state  and  local  government  is  also 
significant.  The  total  receipts  (cf.  Table  2)  for  purposes  of  state 
government  in  1920  represent  but  slightly  more  than  11  per 
cent  of  the  entire  tax  burden,  leaving  about  42  per  cent  as  the 
share  of  the  local  governments.  It  is  clear,  therefore,  that  the 
greatest  opportunities  for  reduction  in  the  costs  of  government  in 

•  Per-capita  governmental  expenses,  $94.S9;  per^apita  governmental  revenues.  $106.97. 


\\ 


29 


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the  State  of  N'ew  York  lie  primarily  in  the  direction  of  federal 
and  local  economies  rather  than  in  state  economies.  Your  com- 
mittee realizes  that  substantial  progress  is  being  made  in  the 
direction  of  more  economical  state  administration,  but  we  wish 
to  make  clear  the  limited  possibilities!  of  reducing  in  any  marked 
degree  the  general  tax  burden  unless  the  improvement  reaches 
beyond  merely  state  administration.  If  all  the  functions  of  the 
state  government  were  completely  abolished,  the  reduction  in  the 
total  per  capita  taxes  would  be  in  the  neighborhood  of  but  11 
per  cent. 

The  direct  tax  burden.— An  examination  of  the  taxes  levied 
on  property  in  this  state,  the  so-called  "  direct  taxes,"  makes  it 
clear  that  no  one  unit  of  local  government  within  the  State  of 
]^ew  York  is  more  resiponsible  than  any  other  for  the  gradual 
increase  in  the  cost  of  government  in  this  state. 

The  aggregate  taxes  levied  upon  property  from  1910  to  1920 
are  shown  in  detail  in  Table  3.  This  aggregate  levy  is  made  up 
of  the  taxes  levied  and  collected  through  the  local  tax  machinery 
for  the  support  of  city  government,  schools,  county  government, 
town  government,  village  government,  and  state  government.  In 
order  that  the  comparative  increases  in  the  tax  burden  imposed 
upon  each  one  of  thesfe  governmental  units  may  be  made  clear,  the 
data  are  presented  in  Graph  2.  In  the  graph  as  here  presented 
an  increase  of  10  per  cent  in  village  taxes  shows  the  same  upward 
turn  of  the  line  as  does  a  10  per  cent  increase  for  taxes  levied 
for  city  purposes.  Taxes  levied  for  state  purposes'  have  been 
omitted  from  this  chart  inasmuch  as  they  are  discussed  in  greater 
detail  later  in  this  chapter  and  inasmuch  as  direct  state  tax  levies 
are  resorted  to  only  for  the  purpose  of  balancing  the  budget  form- 
ing so  small  a  portion  of  the  state  revenues  as  to  give  a  false 
impression  when  placed  in  comparison  with  the  local  taxes  levied. 

Comparisons  with  increases  in  population  and  assessed 
values.— From  1910  to  1920  the  growth  in  population  in  the 
state  was  roughly  1,270,000,  an  increase  of  14  per  cent.  During 
the  same  period  the  full  value  of  taxable  real  property  plus  the 
assessed  value  of  .personal  property  of  the  state  increased  about 
45  per  cent.  The  total  direct  taxes  levied  on  property  increased 
88  per  cent.    In  other  words  costs  of  government  have  been  advanc- 


28 


29 


Graph  2 

Aggregate  Direct  Property  Taxes  Levied  in  State  of  New  York,  1910- 

1920,  for  Cities,  Schools,  Counties,  Towns  and  Villages 
200 


/*7     /sms 


/»9       /920 


ing  much  faster  than  population  or  the  tax  base.  This  fact  Is 
emphasized  by  the  chart  on  page  30.  The  figures  for  each  curve 
are  presented  on  a  percentage  basis,  1910  equalling  100  per  cent. 
In  this  chart  the  full  value  of  taxable  real  estate  plus  the  value 
of  taxable  personal  property  is  labelled  "  tax  base  "  and  "  taxes  " 
represent  aggregate  direct  property  taxes  levied  for  all  purposes 
within  the  State. 

The  increase  of  public  debts.— During  the  period  1911  to 
1920  the  net  debts  of  cities,  counties,  towns,  villages  and  school 
districts  in  the  State  of  New  York  increased  in  round  numbers 
from  $897,000,000  to  $1,560,000,000,  an  increase  of  74  per  cent. 
The  figures  for  each  year  are  shown  in  Table  4. 

Here  again  the  increase  has  been  much  faster  than  the  increase 
of  assessed  values  or  population.  The  increase  has  also  exceeded 
the  increase  of  the  direct  tax  burden  which,  during  the  same  nine- 
year  period,  incmased  but  56  per  cent.  In  computing  the  debt^ 
of  the  various  units  of  local  government  in  the  State  of  New 
York  both  the  bonded  and  the  temporary  debts'  have  been  inchideil, 
while  sinking  funds  have  been  deducted  so  that  the  "  net  debt '' 
represents  the  net  funded  plus  the  temporary  debts  of  all  units 
of  local  government.  It  proved  impossible  to  procure  satisfactory 
figures  for  1910. 

TABLE  4 

Net  Debt  of  Local  Governmental  Units,  1911-1920 

^^11    $S96,  715,  654 

^^12    972^  445^  570 

^^1^  1,  043,  890,  870 

^^1-^  1, 126,  710,  87:5 

^^IS  1,  211,  399,  507 

^^1^  1,  250,  590,  851 

l^l'^  1,  256,  137,  753 

^^^^  1,  332,  492,  554 

^^1^  1,  321,  592,  279 

^^^^  1,  559,  795,  157 

The   increase  in   the   true   tax  rate.— The  tax  rates   levied 
throughout  the  State  are,  of  course,  influenced  not  only  by  the  tax 


30 

Graph  3 

Relative  Increase  of  Dibect  Taxes,  Tax  Base  and  Population  in  New 

YoBK   State,    1910^1920.     1910=100% 


31 


levies  but  by  the  accuracy  of  assessment.  In  communities  in 
which  property  is  assessed  on  a  50  per  cent  basis,  the  tax  rate  is 
twice  as  high  for  the  same  tax  burden  as  it  would  have  been  if 
the  property  had  been  assessed  at  its  full  value.  To  secure 
accurate  figures  as  to  the  increase  of  the  true  tax  rate  in  the 
State  of  N^ew  York  during  the  past  ten  years,  it  is  necessary  to 
find  what  the  average  tax  rate  would  have  been,  provided  real 
estate  had  been  assessed  at  full  value  throughout  the  State  each 
year  for  the  ten-year  period.  On  the  basis  of  the  equalization 
rates  adopted  by  the  State  Board  of  Equalization  annually,  it 
was  found  possible  to  secure  a  fairly  dependable  figure  for  the  full 
value  of  real  property  including  special  franchises.  To  this  was 
added  the  assessed  value  of  taxable  personal  property,  and  on  this 
total  base  a  tax  rate  was  computed  sufficient  to  produce  the  aggre- 
gate taxes  levied.  An  allowance  has  been  made  in  this  computa- 
tion for  the  fact  that  certain  personal  property,  though  taxable 
for  local  purposes,  is  not  taxable  for  State  purposes.*  The 
resulting  figure  is  the  true  average  tax  rate  for  the  entire  State : 
that  is,  it  is  what  the  average  rate  would  have  been  had  real 
property  been  assessed  on  a  100  per  cent  basis.  This  computa- 
tion produces  the  following  table: 

TABLE  5 
True  Average  Property  Tax  Rate,  1910-1920 

Rate  per       Index 

$1,000        1910  =  100 

1910    $17.32  100 

1911  18. 72  108 

1912  16.64  96 

1913  19.93  115 

1914  17.18  99 

1915  18.24  105 

1916  18.72  108 

1917  19.99  115 

1918  21.17  122 

1919  21.83  126 

1920  22.45  130 


/»9       /Sa\ 


*  Tax  Law,  art.  9,  sec.  205 


32 


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34 

Graph  4 

Relative  Increase  of  Per  Capita  Cost  of  State  Government  and  of  ttie 

Level  of  Wholesale  Prices,  1910-1920.     1910=100% 
2S0 


^    OF/     as     m     m     W     m     W     m     m — ^ 


.  '       ■  36  '       .     '        ,       ' 

The  marked  variations  evident  in  1911  and  1913  are  due  almost 
entirely  to  the  large  increases  in  the  taxes  levied  by  :Nrew  York 
City  for  those  two  years.  With  these  exceptions,  there  has  been  a 
gradual  and  consistent  increase  in  the  rate,  amounting  to  30  per 
cent  in  the  ten-year  period. 

Per-capita  state  expenditures  and  commodity  prices. —  As  has 
been  pointed  out,*  the  per-capita  costs  of  state  government  have 
risen  from  $4.21  in  1910  to  $9.00  in  1920.  The  per-capita 
figures  for  each  of  the  intervening  years  and  also  for  the  thirty 
years  preceding  will  be  found  in  Table  G.  The  per-capita  receipts 
from  all  sources  for  purposes  of  state  government  show  an  even 
larger  increase  due  to  the  deficit  appearing  in  1910,  and  to  the 
very  large  surplus  which  was  accumulated  in  1920. 

It  must  not  be  forgotten  that  a  government,  like  a  private  cor- 
poration, has  to  go  into  the  open  market  and  buy  its  supplies  and 
materials  and  that  during  recent  years  there  has  been  an  abnormal 
increase  in  the  price  level.  It  is  of  interest,  consequently,  to  com- 
pare the  course  of  state  expenditure  with  the  variations  in  the 
price  level.  This  is  worked  out  on  a  percentage  basis  in  Table  7 
and  is  illustrated  in  Graph  4. 


TABLE  7 

Per-Capita  Expenditures  of  State  Government  Compared 
WITH  THE  Level  of  Wjioeesale  Prices.     1910  ==  100%. 


Year 


1910 
1911 
1912 
1913 
1914 
1915 
1916 
1917 
1918 
1919 
1920 


Per  capita 
expenditures 


100 
98 
114 
126 
133 
141 
127 
145 
172 
183 
215 


Wholesale 

r-onimoditv  prices 

(U.  S.  Bureau  of 

Labor  Index) 


100 
95 
101 
100 
100 
101 
124 
176 
196 
212 
243 


•C/.  twpra,^.  24. 


36 


Graph  5 
Deficiencies  and  Surpluses  of  State  Revenues  by  Years,  1881-1930 


•     •  •  37  •  ' 

From  these  figures  it  is  clear  that  in  spite  of  the  pheiiomeual 
increase  in  the  per-capita  cost  of  state  government,  115  per  cent 
in  ten  years  —  this  increase  is  very  considerably  less  than  the 
general  increase  in  wholesale  costs  during  the  same  period.  The 
correlation  could  not  be  expected  to  be  an  exact  one,  of  course, 
for  the  things  whic^  the  State  buys  with  its  money  do  not  cor- 
respond at  all  exactly  with  the  Bureau  of  Labor's  list  of  com- 
modities. Moreover  the  scope  of  .the  State's  task  has  changed 
during  the  period.  The  fact  that  since  1910  the  state  govern- 
ment has  assumed  many  new  functions  as  well  as  a  larger  share 
of  many  of  the  local  functions  would  give  gi-ounds  for  expecting 
a  very  sharp  rise  in  the  line  representing  state  expenditure  in 
relation  to  the  rise  in  the  price  index. 

The  sudden  drop  of  the  per-capita  cost  of  state  government  in 
1916  was  due  to  the  fact  that  the  fiscal  year  was  shortened  by 
three  months  in  that  year,  thereby  substantially  reducing  the 
expenditures  without  producing  a  corresponding  effect  upon  the 
r'eceipts.  Except  for  this  single  year  it  will  be  seen  that  the 
increase  in  the  costs  of  government  have  in  the  main  risen 
gradually  from  year  to  year. 

Surpluses  and  deficiencies. —  A  study  of  the  receipts  and 
expenditures  of  the  state  government  during  the  past  forty  years 
reveals  a  wide  variation  between  the  receipts  of  the  State  and 
its  financial  needs.  The  result  has  been  a  series  of  deficiencies 
and  surpluses,  the  size  of  which  has  been  very  large  indeed 
in  several  recent  years.  This  situation  is  emphasized  by 
Graph  5,  which  is  based  vipon  the  figures  contained  in  Table  6. 
This  record  of  surpluses  and  deficiencies  indicates  clearly  the 
failure  of  the  state  budget  to  balance  from  year  to  year  with  a 
reasonable  degree  of  nicety.  Your  Committee  believes  that  the 
adoption  of  the  tax  program  presented  in  this  report  together  with 
the  improvement  under  way  in  connection  with  the  preparation  of 
the  budget  will  tend  to  stabilize  the  receipts  and  expenditures  of 
the  government  in  such  a  way  as  to  cut  surpluses  and  deficiencies 
to  negligible  amounts.  Such  a  result  is  very  desirable  for  it  is 
unfair  to  the  taxpayer^  either  to  make  them  pay  more  than  is 
necessary  for  the  government  in  any  one  year,  or  to  relieve  the 
taxpayers  of  any  given  year  at  the  expense  of  taxpayers  of  other 
years. 


i 


Portion 
/20 


38 


Geaph  6 
OF  New  York  State  Receipts  Supplied  by  Direct  Tax,  1881-ig20 


39 


Receipts  from  "  direct  "  and  "  indirect  '*  sources. —  Table  8 
and  Graph  6  compare  the  total  receipts  for  general  pui"poses  of 
state  government  since  1881  with  the  receipts  from  the  "  direct" 
state  taxes  levied  on  general  property  during  these  same  period*. 

TABLE  8 

Share  of  New  York  State  Receipts  Supplied  by  Direct  Tax, 

Five- Year  Periods,  1881-1920 


Years 

Receipts  for 

general  purposes 

of  State 

government 

Direct  State  taxes  levied  on  general 
property 

Amount 

Per  cent  of 
total  receipts 

1881     1885 

$55,427,550  08 
66,906.879  59 
71.385,785  42 
111,147,446  17 
123,390.127  02 
172.561,404  55 
235,201.972  46 
395.202,261  20 

$39,110,666  10 
48.854.263  76 
44.461,795  75 
57,318.981  92 
10.493.182  49 

76 

1886—1890 

73 

1S91_1895 

62 

1896 — 1900 

52 

1901 — 1905 

8 

1906_1910 

1911—1916 

44.075.561  02 
74,860.848  83 

19 

1916—1920 

19 

.—^^^——.^^-^——^————^^— 

The  graph  makes  very  clear  the  change  in  the  function  of  the 
direct  tax  during  this  period.  Prior  to  1900  it  was  the  main 
source  of  state  revenue.  Since  that  time  it  has  been  merely  the 
elastic  element  in  the  system,  depended  upon  to  balance  the 
budget.  The  Committee's  recommendlation  regarding  the  con- 
tinuance of  this  direct  tax  appears  on  page  57.  During  the  five 
years,  1906-1910,  during  1914  and  during  1916,  no  direct  state 
tax  was  levied  on  general  property.* 

*  The  special  sense  in  which  the  term  "  direct "  tax  isTused  in  New  York  should  be  noted  • 
It  applies  merely  to  the  state  tax  on  property.  It  does  not  include  the  personal  *income  tax  or 
the  business  income  tax. 


-Ol 


41 


Local  Finance 

Miscellaneous   suggestions  regarding  local  finance.— It   has 
been  shown  that  the  increase  in  the  costs  of  local  government  and 
the  increase  in  the  net  debt  of  the  local  governmental  units  during 
the  past  ten  years  have  far  exceeded  both  the  growth  cf  population 
and  the  growth  of  the  tax  base.*    While  these  facts  are  of  imix)rt- 
ance  as  an  indication  of  the  growth  of  the  burden  being  borne 
by   taxpayers,    it   by   no   means   follows   that   local  government 
generally  is  costing  more  than  is  legitimate.     It  does  indicate 
the  need  of  caution.      During  the   same  ten-year  interval   the 
standards  of  governmental  service,  especially  in  the  cities,  in  the 
larger  towns,  in  the  villages  and  in  the  schools  have  risen  very 
materially.    We  are  no  longer  satisfied  with  the  same  quality  of 
governmental  service  which  was  acceptable  a  few  years  ago.    The 
extension  of  municipal  functions  also  has  been  very  marked  dur- 
ing the  past  ten  years,  especially  in  the  field  of  public  recreation 
and  general  welfare.     Our  local  governmental  units  today,  there- 
fore, are  rendering  far  more  sei-vice  and,  as  a  whole,  far  better 
^rvice  than  was  furnished  at  the  beginning  of  the  decade.    These 
facts,  together  with  the  very  unusual  decrease  in  the  purchasing 
power  of  the  dollar,  undoubtedly  go  some  distance  in  explaining 
the  great  increase  in  the  cost  of  local  government  to  which  atten- 
tion has  been  called.    However,  certain  points  have  been  brought 
to  our  attention  which  indicate  that  they  by  no  means  supply  a 
complete  explanation.    The  situation  is  one  which  in  our  opinion 
deserves  a  more  elaborate  study  than  has  as  yet  been  made. 

Organization  and  Efficiency.— The  preliminary  examina- 
tion of  local  financial  methods  made  by  this  Committee  during  the 
course  of  its  earlier  efforts,  showed  conclusively  that  there  were 
many  points  at  which  improvements  could  be  made  in  govern- 
mental organization  and  methods  in  the  interests  of  more  economi- 
cal and  more  efficient  administration.  A  great  manv  of  our  cities 
and  all  of  our  urban  counties  are  at  present  operating  under  forms 
of  governmental  organization  that  are  in  many  respects  unsatis- 
factorv  and  wasteful. 


Central  Purchasing.^  The  cities  of  the  State  are  wasting 
large  sums  of  money  amiually  through  unbusinesslike  methods  of 
purchasing.  Very  few  have  established  central  purchasing  offices. 
In  past  years  many  city  officials  have  testified  before  this  Com- 
mittee that  the  lack  of  systematic  purchasing  has  increased  gov- 
ernmental costs  and'  have  advocated  central  purchasing  as  a  means 
of  economy.  The  cities  which  have  adopted  this  essential  busi- 
ness' reform  are  for  the  most  part  strongly  in  its  support.  At  such 
times  as  these  the  careful  handling  of  the  cities'  purchasing 
power  is  of  especial  importance. 

The  Tax  Calendar. —  Many  of  the  cities  of  the  State  still  con- 
tinue the  practice  of  paying  interest  on  temporary  loans  which 
might  be  avoided  if  the  taxes  were  collected  early  enough  in  the 
fiscal  year  to  make  temporary  borrowing  unnecessary.  The 
Comptroller  of  New  York  City  has  stated  that  the  delay  in  the 
collection  of  the  first  installment  of  city  taxes  until  the  fifth 
month  of  the  fiscal  year  costs  approximately  three  million  dollars 
annually.  When  Troy  abolished  late  tax  collections  by  changing 
the  municipal  tax  calendar,  $42,000  was  saved  the  first  year  alone. 
In  Middletown  an  annual  saving  of  $7,000  has  been  made  by  a 
similar  change  of  the  tax  calendar.  While  it  hasf  been  impossible 
for  the  Committee  to  make  a  complete  estimate  of  the  interest 
charges  that  can  be  avoided  by  advancing  the  dates  of  tax  col- 
lection in  the  score  or  more  cities  which  now  begin  collections  any- 
where from  three  to  nine  months  after  the  first  of  the  fiscal  year, 
an  estimate  based  on  payments  of  1919  indicates  that  the  sum 
may  run  as  high  as  three  or  four  million  dollars  per  year. 

Municipal  Bonding. —  In  years  gone  by  there  has  been  much 
extravagant  and  unsound  bonding  by  the  cities  of  this  State.  In 
recent  years  there  has  been  a  marked  improvement  but  the  Com- 
mittee believes  that  further  legislation  will  be  required  before  the 
problem  will  be  solved. 

It  is  appreciated  that  the  above  are  scattered  suggestions  rather 
than  a  comprehensive  program.  The  entire  field  is  one  which  in 
our  opinion  would  really  repay  further  study. 


*  C/.  supra,  pp.  37,  29,  30, 


I40J 


I 


The  Personal-Property  Tax 

As  has  been  explained  above,*  it  was  felt  that  the  time  was 
ripe  to  review  the  various  elements  in  the  tax  system  in  order  to 
determine  the  present  distribution  of  tax  burdeng  and  to  ascertain 
whether  the  progress  of  the  theory  and  technique  of  taxation  did 
not  offer  the  possibility  of  substantial  improvement.  The  results 
of  this  survey  are  taken  up  in  detail  in  the  separate  sections  which 
follow. 

The  facts  regarding  personal-property  assessments. —  In  the 
course  of  a  long  evolution  the  property  tax  in  the  State  of  New 
York  has  resolved  itself  into  what  is  practically  a  tax  on  real 
estate.  Whereas  personalty  made  up  more  than  25  per  cent  of 
the  assessed  value  on  the  rolls  in  1868  and  more  than  10  per  cent 
as  late  as  1905,  it  comprised  less  than  5  per  cent  of  the  tax 
base  in  1910,  less  than  4  per  cent  in  1915  and  less  than  2  per 
cent  in  1920.  The  total  assessed  value  of  personalty  in  New  York 
State  in  1920  amounted  to  only  $255,263,116.  The  property  tax 
on  personalty,  as  it  now  stands,  is  a  collection  of  miscellaneous 

odds  and  ends. 

From  the  detailed  "figures  presented  in  Tables  9  and  10  it  ap- 
pears that  in  the  forty  years,  1840  to  1880,  the  assessed  value  of 
real  estate  in  New  York  increased  352  per  cent,  while  the  assessed 
value  of  personal  property  increased  170  per  cent.  During  this 
period  the  property  tax  was  in  fact  a  ^enero-^property  tax,  and  all 
realty  and  personalty  with  some  unimportant  exceptions,  was  sub- 
ject to  it.  With  the  rapid  growth  of  the  corporate  form  of 
organization  there  is  every  reason  to  believe  that  the  value  of 
personalty  was  increasing  as  rapidly  as  the  value  of  real  property, 
and  the  difference  in  the  rate  of  increase  shown  by  the  fi^gures  of 
assessed  values  is  a  measure  of  the  failure  of  the  general-prop- 
erty tax  as  a  tax  on  personalty. 

In  the  forty  years  1880  to  1920  the  assessed  value  of  real  estate 
increased  534  per  cent,  while  the  assessed  value  of  personalty 
decreased  to  75  per  cent  of  the  value  in  1880.  During  this  period 
the  failure  of  the  general-property  tax  to  reach  personalty  waa 


( 


*  Supra,  p.  19. 


[42] 


43 


recognized,  and  large  classes  of  property  were  withdrawn,  to  be 
taxed  in  other  ways. 

Before  1880  only  the  personal  property  of  religious,  charitable 
and  similar  organizations  and  a  certain  minimum  of  household 
furniture  and  personal  effects  were  exempted  from  the  property 
tax.  In  1880  the  capital-stock  franchise  tax  was  first  imposed 
on  certain  corporations  and  these  were  exempted  from  further 
state  taxation  on  personalty.  This  personalty  was  still  subject, 
however,  to  local  property  taxes,  and  it  was  twenty  years  before 
any  class  of  personalty  was  exempted  entirely  from  the  property 
tax  to  be  reached  in  other  ways. 

In  1901,  when  the  one  per  cent  tax  was  imposed  on  bank  stock 
and  on  trust  companies,  these  were  exempted  from  all  property 
taxes,  state  and  local,  on  personalty.  In  1905  mortgages  were 
withdrawn  from  the  property  tax  to  be  subjected  to  a  recording 
tax  instead,  and  in  1911  the  secured-debts  tax  gave  the  holders  of 
certain  intangibles  the  option  of  securing  their  exemption  from 
the  general-property  tax.  Also  in  1911  the  license  tax  on  motor 
vehicles  replaced  the  personal  property  tax  on  this  class  of  prop- 
erty. In  1917  the  franchise  tax  on  net  income  of  business  cor- 
porations exempted  all  personalty  of  such  corporations  from  the 
property  tax.  Finally,  under  the  terms  of  the  personal  income 
tax  law  of  1919,  as  amended,  such  intangibles  as  were  still  taxed 
as  personal  property  were  withdrawn  from  that  tax. 

In  consequence,  only  a  remnant  of  personalty  is  still  subject 
to  the  property  tax.  This  includes  for  local  purposes  the 
tangible  personalty  of  those  corporations  subject  to  the  capital- 
stock  tax  (sec.  205),  and  for  state  and  local  purposes  such 
personalty  as  farm  animals  and  machinery,  the  stock-in-trade  of 
unincorporated  businesses,  and  household  furniture  and  personal 
effects  in  excess  of  $1,000.  That  even  these  classes  are  not 
reached  effectively  is  indicated  by  the  fact  that  the  total  personal- 
property  assessment  for  1920,  including  such  corporate  personalty 
as  is  still  taxed  locally,  was  $255,000,000,  while  the  true  value 
of  live  stock  alone  was  estimated  to  be  greater  than  this  eight 
years  earlier.* 

*  U.  S.  Census,  Wealth,  Debt  and  Taxation,  1912 


u 


Graph  7 

Amount    of    Personalty    Assessed    under    the    General-Property   Tax, 

18»6-1920 


'SSks^ 

700 

K          i 

r\ 

^ 

\ 

r 

w 

\ 

£00 

1 

^ 

v\ 

^v.^ 

\ 

^00 

\ 

JOO 

> 

too 

*      /yi/6 "^0                   /^M-                    <9/a                    /9A3                     yM^ 

Graph  8 
Ratio  of  Assessed  Value  of  Personalty  to  Total  Property  Subject  to 

THE  General-Property  Tax,   1840-1920 


...•••  45  •      ■  •  '    *     • 

Graphs  7  and  8  show  dearly  the  decline  in  the  importance  of 
personal  property  absolutely  and  in  relation  to  the  other  elements 
in  the  tax  base. 

TABLE  9 

Personal  Property  Assessed  under  the  General-Property 
Tax  at  Five- Year  Intervals,  1840-1920 


Year 


1840.. 

1845.. 

ISdO.. 

1855.. 

I860.. 

1865*. 

1870. 

1875. 

1880. 

1885. 

1890. 

1895. 

1900. 

1905. 

1910. 

1915. 

1920. 


Total  real 

and  personal 

(assessed  value) 


$639,171,000 

604,479,016 

724,874,293 

1,401,285,279 

1,440,550,836 

1,196,403,416 

2,052,537,898 

2,466,267,273 

2,681,257,606 

3,224,682,343 

3,779,393,746 

4,450,474,499 

5,765,741,474 

8,129,021,386 

10,121,501,061 

11,790,628,803 

14,850,989.607 


Personalty 


$121,447,800 
117,988,895 
153.183,486 
294.012,564 
320,617,352 
334,826.220 
452.607.732 
357.941,401 
340.921.916 
324,783,281 
382,159,067 
541,621.122 
672,715.703 
816.399,934 
482,499,193 
454,988,997 
255,263,116 


Ratio  of 

personalty 

to  total 


18.93 
19  48 
21  05 
20.95 
22.24 
21.89 
22.05 
14.86 
12.70 
10.98 
10.12 
12.16 
11.66 
10.04 
4.77 
3.86 
1.72 


>♦'-. 


n 

, 

t» 

\ 

/S 

^ 

V 

r 

\ 

A 

S 

, 

9          A 

U»         ^* 

9S0         ^A 

so          M 

^      d 

W          A 

M9          A 

^ 

♦The  largest  proportion  of  personalty  was  reached  in  1866  when  the  ratio  of  personalty  to 
otal  was  25. 50. 

TABLE  10 

Personal  Property  Subject  to  the  General-Property  Tax, 

1896-1920 


Year 


1896 

1897 
1898 
1899 
1900 
1901 
1902 
1903 
1904 
1905 
1906 
1907 
1908 


Amount 


$544,311,557 
649,364,694 
758,581,839 
742,959,229 
672,715,703 
701.565.905 
672.249,054 
819,203,165 
758,893,604 
816,399,934 
697,006,582 
674,411,315 
550.081,115 


Year 


1909 
1910 
1911 
1912 
1913 
1914 
1915 
1916 
1917 
1918 
1919 
1920 


Amount 


$555,623,070 
482.499.193 
462.300.841 
447,488.729 
424,876.235 
438,161.973 
454,989.997 
485.742.745 
513.853,047 
435.871,630 
364,243.720 
255.263.116 


4,     I  • 


Complete   exemption  of  personal  property  recommended.— 

In  the  opinion  of  the  Committee  the  continuance  of  the  taxation 
of  these  last  vestiges  of  personal  property  sei-^^es  no  useful  pur- 
pose from  the  point  of  view  of  improving  the  equity  of  the 


%\ 


) 


ffi, 

I: 


I' 


ji 


46  •    •    .     ' 

flystem.  Its  abolition  would  involve  no  great  loss  in  public  revenue 
and  would  materially  simplify  and  clarify  the  tax  situation.  The 
Committee  recommends  that  a  statute  he  parsed  exempting  en- 
tirely personal  property  from  taxation,  restricting  the  prox>erty 
tax  to  real  estate. 

A  large  proportion  of  the  personal  property  reported  for  taxation 
consists  of  live  stock,  stock-in-trade  of  unincorporated  merchants 
and  other  income-producing  goods.  The  income  arising  from  such 
goods  is  already  subject  to  the  income  tax  and,  in  sb  far  as  they 
form  a  part  of  the  assets  of  unincorporatied  business,  such 
income  would  be  subject  to  the  proposed  new  tax  on  unincor- 
porated business.*  The  adoption  of  an  unincorporated  business 
tax  completely  overcomes  most  of  the  obstacles  which  have  pre- 
viously blocked  the  proposal  to  exempt  personal  property  entirely. 
It  may  be  that  sometime  in  the  distant  future,  the  State  may 
revert  to  a  general  property  test  in  some  form  as  a  part  of  the  set 
of  criteria  by  which  tax  burdens  shall  be  distributed  but  the  emas- 
culated remains  of  the  discredited  personal-property  tax  will  form 
no  important  starting-point  for  such  a  new  development,  if  it  ever 
comes. 

The  total  estimated  yield  of  the  tax  on  personal  property  for 
the  certain  specified  years  is  as  follows. 

1901 $10,745,000 

1911 6,439,000 

1918 10,706,000 

1919 9,238,000 

1920 6,428,000 

The  state's  share  of  the  1920  collections  amounted  to  about 
$259,000.  The  proposed  unincorporated  business  tax,  which 
could  not  properly  be  established  so  long  as  the  present  personal 
property  taxes  remain,  may  ibe  expected  to  produce  more  than 
twice  the  total  amount  now  collected  from  personal  property.  The 
yield  of  the  proposed  new  tax  should  be  so  divided  as  to  protect 
the  local  communities  from  any  diminution  in  revenue  what- 
soever. 


F  *  C/.  infra,  p.  126'cZ  seq. 


9 


The  Real-Estate  Tax 

As  a  consequence  of  the  break-down  of  the  personal-property 
tax  described  above,*  real  estate  has  come  to  be  practically  the  sole 
element  in  the  property4ax  base  and,  in  the  almost  complete 
absence  of  other  elastic  elements  in  the  tax  system,  has  been  called 
upon  to  bear  the  brunt  of  the  recent  increase  in  the  cost  of  govern- 
ment, f 

The  burden  on  real  estate. — ^Any  attempt  to  measure  quantita- 
tively and  with  exactness  the  increase  in  the  real  burden  of  the 
real-estate  tax  is  surrounded  by  serious  difficulties  of  both  a  theo- 
retical and  a  practical  nature.  The  statistics  of  assessed  value  are 
often  of  doubtful  dependability.  The  rates  in  the  different  taxing 
districts  vary  so  widely  as  to  make  difficult  the  presentation  of 
an  accurate  picture  of  the  situation.  There  are  questions  always 
present  as  to  the  extent  to  which  the  taxes  have  been  anticipated 
and  allowed  for  in  setting  the  purchase  price  of  the  property. 
There  are  relationships  between  real-estate  values  and  general 
rates  of  interest.  J  All  in  all,  the  task  of  gauging  the  real  estate 
tax  burden  is  one  to  be  approached  with  diffidence  and  caution. 
Conclusions  may  not  be  hastily  drawn  or  dogmatically  stated. 
However,  the  tendencies  revealed  by  a  study  of  the  facts  stand  out 
so  plainly  that  certain  definite  deductions  may  safely  be  made. 

The  Growth  of  the  Tax  Rate  on  Real  Estate. —  The  bare 
facts  regarding  the  increase  in  tax  rates  on  real  estate  are  in  them- 
selves of  considerable  significance.  Viewed  from  the  long-time 
point  of  view  the  increase  has  been  very  large  indeed.  Moreover, 
the  rate  of  increase  has  been  greatly  accelerated  in  the  last  decade. 
Material  illustrating  the  growth  of  tax  rates  on  real  estate 
over  a  long  period  has  been  made  available  to  the  Committee 
through  the  kindness  of  Dr.  G.  B.  L.  Amer,  who  has  under  way 
an  extensive  investigation  of  the  relation  of  assessed  values  to  true 


*  Supra,  p.  42  et  seq. 

t  Cf.  supra,  p.  19  et  seq. 

%  ELeal  estate  values  rest  fundamentally  upon  income  (actual  or  expected).  They  really  repre- 
sent the  present  value  of  such  income.  Tne  determination  of  such  present  value  involves,  of 
course,  the  use  of  a  rate  of  interest.  But  interest  rates  vary  from  time  to  time  and,  consequently, 
the  values  which  depend  upon  them  vary  also.  A  decline  in  the  interest  rate  tends  to  send  up 
the  values  and  an  increase  in  the  interest  rate  tends  to  depress  them. 

[47]  .         .  '  .  \ 


M-    ->i. 


48 


values  for  Manhattan  real  estate  for  a  period  running  back  to 
1850.  Accepting,  subject  to  subsequent  qualification,*  true  tax 
rates  on  the  full  value  of  the  real  estate  as  an  indication  of  burden. 
Dr.  Arner  estimates  that  the  burden  on  real  estate  in  Manhattan 
in  1921  is  at  least  five  and  one^half  times  as  great  as  it  was  seventy 
years  ago.f 

Table  11  presents  fairly  complete  and  satisfactory  data  cover- 
ing the  period  1900-1920.  These  figures  relate  to  the  State  as 
a  whole,  all  taxes  which  have  been  actually  levied  against  real 
estate  being  compared  with  the  full  value  of  real  estate  for  each 
year  in  the  period.  It  will  be  noted  that  the  true  rate  on  real 
estate  has  moved  upward  in  the  course  of  twenty  years  from  1.49 
to  2.56.  Moreover,  by  far  the  greater  part  of  the  increase  has 
come  since  1910.  Whereas  the  rate  moved  from  1.49  to  only  1.72 
in  the  first  decade  after  1900,  it  rose  from  1.72  to  2.56  in  the 
second. 

If  one  accepts  Dr.  Arner's  figures  as  indicative  of  the  general 
situation  in  the  early  fifties  one  may  say  that  real  estate  tax  rates 
in  'New  York  City,  at  least,  have  increased  nearly  as  much  in  the 
last  ten  years  as  they  did  in  the  preceding  sixty. 

It  should  be  noted,  however,  that  the  1910-1920  comparison  is 
somewhat  unfair  because  the  rate  in  1910  was  relatively  low  and 
in  1920  relatively  high  as  compared  with  the  years  immediately 
preceding.  The  five-year  moving  average  presented  in  the  last 
column  of  Table  11  minimizes  these  variations. 


*  Cf.  infra,  p.  49  et  seq. 

t  The  tax  rates  during  this  period  ran  as  follows: 


1850  — 

1.14 

1851  — 

.92 

1852  — 

.97 

1853  — 

1.23 

1854  — 

1.06 

Dr.  Arner  estimates  that  property  was  assessed  at  about  50  per  cent  of  full  value  at  this  time. 
His  estimate  is  based  upon  an  examination  of  255  sales,  practically  all  those  noted  by  the  assessors 
on  the  assessment  rolls  plus  a  few  others  obtained  by  an  examination  of  the  original  deeds.  Of 
the  255  sales,  the  median  case  shows  an  assessment  of  61.2  per  cent  of  full  value.  Vacant  land, 
however,  appears  to  have  been  much  less  heavily  assessed  tnan  improved  property  and  most  of 
the  sales  were  sales  of  improved  property.  The  220  cases  of  improved  property  snow  a  median 
of  62.3  per  cent,  whereas  the  35  cases  of  vacant  land  show  a  median  of  43.5  per  cent.  For  the 
city  as  a  whole  it  seems  probable  that  the  50  per  cent  estimate  is  approximately  correct 

The  tax  rate  in  Manhattan  in  1921  was  2.77  on  prwtically  full  vj^lue, 


A. 


1  • 


t      ' 


•         • 


49 


TABLE  11 
Growth  of  the  Tax  Rates  on  Real  Estate,  1900-1920* 


Year 

Full  value  of  real  estate 

Tax  per 

$1,000 

full  value 

Percentage 

increase 

in  rate 

Five-year 

moving 

average  of 

tax  rate 

1900 

$7,206,173,229 
7,313,990,162 
7,501,977,838 
7,948,824,263 
8,284,033,584 
8,527,427,903 

9.129,449.463 

9,889,349,273 

10.539,073,900 

10,753,891,707 

10.993,386,267 

12,037,270,769 
12,261,062,873 
12,774.196,843 
12,915,098,342 
13,216,951,658 

13,685.530,025 
13.942,530.422 
14,351.054,044 
14,691,369,491 
16.395,697.190 

$14  89 

15  70 

16  92 

16  24 

17  21 

17  57 

18  21 

19  03 

20  64 

100 
105 
114 
109 
116 
118 

122 
128 
138 

t 

116 

128 
116 
141 
115 
122 

125 
134 
142 
146 
172 

1901 

1902 

$16  22 
16  75 

1903 

1904 

17  27 

1905 

17  72 

1906 

18  64 

1907 

18  95 

1908 

18  77 

1909 

18  97 

1910 

17  23 

19  06 
17  33 

20  96 

17  08 

18  13 

18  60 

19  88 

21  07 
21  74 
25  60 

18  52 

1911 

18  70 

1912 

18  3ft 

1913 

18  51 

1914 

1ft  4.1 

1915 

18  92 

1916 

19  00 

1917 

19  Q.'t 

1918 

20  90 

1919 

1920 

It  is  necessary,  morever,  to  bear  in  mind  the  fact  that  the  figures 
presented  in  Table  11  are  aggregates  in  which  many  extreme  cases 
are  submerged.  In  some  districts  the  rates  on  full  value  of  real 
estate  are  insignificant.  Thus,  in  1919,  there  were  rates  which 
fell  below  one  per  cent.  On  the  other  hand,  in  the  same  year,  one 
taxing  authority,  Saratoga  Springs,  imposed  a  rate  of  nearly  5 
per  cent  (4.989)  on  estimated  true  value. 

Table  12  shows  the  tax  rates  actually  applied  to  the  assessed 
values  (not  full  values)  of  property  in  all  of  the  cities  of  the  State 
during  the  period  1905-1921.  It  will  be  noted  that  two  cities 
show  increases  in  rates  in  1921  as  compared  with  1920  for  every 
one  city  which  shows  a  decrease. 

The  Tax  Rate  as  an  Indication  of  Real  Burden. —  This 
phenomenal  recent  increase  in  the  tax  rate,  while  significant,  is  not 

*  Computed  by  finding  the  proportion  of  assesed  value  of  property  taxable  for  state  purpose 
and  for  local  purposes  consisting  of  real  estate,  and  estimating  separately  the  amount  of  state  and 
local  taxes  on  real  estate,  and  dividing  the  sum  of  the  estimate  state  and  local  taxes  on  real 
estate  by  the  full  value  of  taxable  real  estate.  The  difference  in  this  rate  and  the  rate  given  on 
page  31  is  due  to  the  fact  that  the  rate  there  presented  is  for  both  personalty  and  real  estate. 

fThe  state  Tax  Commission  has  no  record  of  school  and  village  taxes  for  1909  so  that  the 
rate  can  not  be  estimated  for  this  year.  The  rate  for  the  moving  average  for  thooe  periods 
^lcl^di^s(  1909  \xafi  been  oomputed  oq  the  basis  of  four  yeftro. 


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reasons.  During  this  period  there  has  been  an  increase  in  the  rate 
of  interest.  The  effect  of  this,  in  the  absence  of  other  changes, 
would  be  to  decrease  real-estate  values  so  that  the  same  amount  of 
taxes  would  form  a  larger  percentage  of  the  entire  value.  Such  a 
decline  in  real-estate  values  has  not  actually  taken  place  owing  to 
the  fact  that  increase  in  income  (actual  and  expected)  from  real 
estate  has  apparently  more  than  offset  the  change  in  interest  rates. 
This  increase  in  income  is  partly  the  result  of  improvements,  but 
partly  also  the  result  of  unexpected,  and  hence  uncapitalized,  in- 
come. The  so-called  "  unearned  increment "  arising  from 
the  fairly  steady,  and  not  entirely  foreseen,  increase  in  income 
from  land  may  have  been  sufficient  in  some  cases  to  cancel  a 
substantial  portion  of  the  burden  arising  from  increasing  taxes. 
Finally,  the  tendency  for  tax  rates  to  increase  is  so  general  that 
these  increases,  as  well  as  the  increases  in  income,  must  to  some 
extent  have  been  foreseen  and  capitalized. 

However,  an  inspection  of  the  statistics  of  rates  leads  one  to 
doubt  seriously  whether  even  astute  investors  could  have  antici- 
pated with  any  high  degree  of  exactness  the  couree  which  rate^ 
have  actually  taken.  In  general  the  factors  mentioned  in 
the  preceding  paragraph,  while  of  importance,  probably  do  not 
invalidate  the  rising  rate  as  an  approximate  indication  of  the 
increasing  burden  of  the  tax.  In  this  connection  it  must  bo 
borne  in  mind  that  in  real  estate  is  included  not  merely  land  but 
improvements  as  well  and  several  of  the  qualifications  stated  above 
do  not  apply  with  equal  force  to  that  element. 

All  in  all,  the  committee  believes  that  the  figures  reveal  a  very 
serious  increase  in  the  burden  on  real  estate. 

The  Real-Estate  Tax  as  a  Business  Tax. —  One  of  the 
difficult  problems  which  faced  the  Committee  was  the  treatment  of 
real-estate  taxes  paid  by  business  concerns.  Were  such  taxes  to  be 
counted  as  tax  burdens  on  the  business  in  the  same  sense  as  other 
taxes  paid  by  the  business  ?  In  calculating  the  total  tax  which  a 
given  business  should  pay,  should  the  real-estate  tax  be  taken 
into  account  at  its  full  amount,  at  omly  a  portion  of  that  amount, 
or  not  at  all  ?  '  *     ' 


/      » 


63 


Under  the  generally  accepted  economic  analysis,  an  old  and 
expected  land  tax  imposes  no  burden  upon  a  new  purchaser.  If 
the  tax  on  the  land  is  not  in  excess  of  the  accustomed  and  ex- 
pected rate,  a  business  using  more  land  than  another  business 
is  at  no  disadvantage  because  of  the  larger  land  tax  it  pays  as 
compared  with  the  business  using  less  land  and  paying  less  land 
taxes.  All  would  agree  that  new  and  unexpected  increases  in 
land  taxes  would  certainly  constitute  a  burden  to  the  owner  and 
much  of  the  present  real-estate  tax  rate  is  certainly  new  and 
probably  unexpected.  Moreover,  taxes  on  improvements  are  bur- 
densome, except  in  so  far  as  they  may  be  shifted. 

This  reasoning  leads  to  the  conclusion  that  real-estate  taxes 
paid  by  business  men  are  a  burden  but  are  burdens  distinctly 
less  per  dollar  of  tax  paid  than  imposts  such  as  income  taxes. 
How  much  less  burdensome  they  are  it  is  impossible  to  determine. 

For  other  reasons  as  well  it  seems  wise,  in  making  comparisons 
of  business  taxes,  to  decline  to  recognize  real-estate  taxes  as  true 
business  taxes.  Not  only  are  they  partly,  perhaps  largely,  bur- 
denless,  but  they  are  deductible  as  expenses  in  arriving  at  net 
income  when  that  base  is  used  in  imposing  a  business  tax.  More- 
over, it  would  be  quite  out  of  the  question  to  vary  the  rate  of  a 
business  income  tax  to  take  into  account  the  tax  burden  on  the 
real  estate  used  in  the  business.  The  real  solution  would  seem 
to  be  (1)  to  consider  the  real-estate  tax  a  general  impersonal  tax 
applying  to  all  real  estate  however  used,  whether  in  business  or 
otherwise,  with  rates  stabilized  so  far  as  practicable,  and  (2) 
to  make  the  business  tax  apply  to  the  net  income  of  all  business, 
recognizing  land  taxes  as  deductions  in  arriving  at  such  net  in- 
come. 

The  Relation  of  Real-Estate  Taxes  to  Net  Income  in 
Real-Estate  Ventures. —  The  soundness  of  the  general  position 
assumed  in  the  preceding  paragraphs  becomes  more  apparent  when 
one  comes  to  consider  the  question  of  the  burden  of  taxes  in  the 
case  6f  various  types  of  real-estate  enterprises.  The  Committee 
felt  that  the  importance  of  this  subject  did  not  warrant  a  com- 
prehensive original  investigation  in  this  field  and  the  following 
statements  are  based  on  the  testimony  of  real-estate  men  who  were 
invited  to  supply  data  bearing  on  the  questiooL 


i 


N. 


In  the  case  of  many  typical  investments  in  vacant  land,  for 
example,  undertaken  as  business  propositions,  the  taxes  accumu- 
late almost  as  rapidly  as  the  increase  in  land  values.  It  is  a 
very  common  experience  to  find  that  the  sum-total  of  the  real- 
estate  taxes  paid  during  the  progress  of  such  a  speculation  greatly 
exceeds  the  sum  finally  received  as  the  net  profit.  The  taxes  are 
considered  as  mere  carrying  charges  and  are  estimated  and 
allowed  for  when  entry  upon  the  project  is  under  consideration. 

When  apartment  buildings  are  purchased  by  investors  in  the 
hope  of  profit  through  operation  the  real-estate  taxes  commonly 
amount  to  approximately  50  per  cent,  of  net  income  before  deduc- 
tion for  taxes.  In  the  case  of  office  buildings  the  figures  usually 
run  higher  —  from  60  to  70  per  cent. 

The  speculative  builder  of  apartments  finds  taxes  a  somewhat 
smaller  item  than  the  land  speculator  or  the  operator  because  of 
the  short  time  he  holds  the  property.  Keal-estate  taxes  in  typical 
ventures  of  this  type  run  from  approximately  20  to  25  per  cent 
of  net  income  before  taxes  are  deducted. 

It  is  generally  admitted  by  real-estate  men  that  the  recognition 
of  real-estate  taxes  as  true  business  taxes  in  such  cases  as  these 
would  give  an  entirely  distorted  conception  from  the  point  of  view 
of  burden. 

The  Relation  of  Real-Estate  Taxes  to  the  !N"et  Income 
OF  Farmers. —  The  committee  thinks  this  an  important  subject 
which  would  well  repay  thorough  investigation.  Our  own  staff 
has  found  it  impossible,  owing  to  lack  of  time,  to  enter  upon  this 
field.  We  have  come  upon  intimations  of  excessive  burden  in 
some  parts  of  the  State,  but  the  material  at  present  is  very  sparse. 
However,  the  results  of  a  series  of  studies  made  by  the  New  York 
State  College  of  Agriculture  has  been  analyzed.  These  studies 
were  undertaken  for  the  purpose  of  ascertaining  the  actual  income 
of  farmers  in  various  parts  of  the  State.  Satisfactory  data  are 
available  for  only  a  limited  region,  a  prosperous  fruit-growing 
section,  !N"ewfane  Township,  Niagara  County,  New  York. 
Records  of  farm  income  extending  over  eight  years  are  available 
for  this  district.  Scattered  returns  for  shorter  periods  have  been 
available  for  certain  other  districts. 

Farm  income,  for  the  present  purpose,  has  been  accepted  as 


55 


the  sum  of  three  items  shown  on  the  reports  of  the  New  York 
State  College  of  Agriculture.     These  are: 

(1)  Average  income  from  owned  capital  and  farmer's  labor 

(money  available  for  farmer's  living  and  saving)  ; 

(2)  Value  of  farm  products  furnished  by  farm  to  family 

living;  and 

(3)  Estimated  value  of  house  rent  furnished  by  farm  to 

farmer's  living. 

The  ratio  of  real-estate  taxes  to  the  sum  of  these  items  has 
been  determined  for  the  group  of  farms  in  Newfane  Township, 
and  for  other  farm  groups.  The  amount  paid  in  taxes  has  been 
added  to  the  net  income  in  securing  a  base  for  the  ratio.  The 
following  are  the  results  secured  for  the  Newfane  Township 
farms : 

Ratio  of  real-estate 
Year    WJ^-     No.  farms  taxes  to  net  income 

1913  87  . 2.6  per  cent. 

1914  98  8.9  per  cent. 

1915  81  7.1  per  cent. 

1916  88  5.1  per  cent. 

1917  113    6.3  jier  cent. 

1918  159    5.1  per  cent. 

1919  156    5.6  per  cent. 

1920  178 7.0  per  cent. 

Average  ratio  for  whole  period —  5.5  per  cent. 

A  similar  ratio  was  worked  out  for  a  group  of  farms  in  a  pros- 
perous region  in  the  Chemung  Valley  in  Chemung  County.  The 
ratio  is  an  average,  being  based  upon  returns  from  60  to  107 
farms,  for  the  period  1912-1918,  inclusive.  For  this  group  the 
ratio  of  real-estate  taxes  to  farm  income  was  4.6  per  cent,  for  the 
period  covered. 

For  578  farms  in  a  prosperous  region  in  northern  Livingston 
County,  New  York,  the  ratio  of  real-estate  taxes  to  farm  income 
in  1908  was  3.6  on  the  average.  For  697  farms  in  the  same 
region  the  ratio  was  7.0  per  cent  in  1918.  The  ratio  almost 
doubled  in  the  course  of  the  ten-year  interval. 

For  a  region  of  average  prosperity  in  Dryden  Township  the 


66 

average  ratio  of  real-estate  taxes  to  farm  income  for  250  farms, 
in  1917,  was  6.3  per  cent. 

It  is  believed  that  the  percentages  here  given  are  abnormally 
low  both  becanse  the  samples  are  taken  for  the  most  part  from 
very  prosperous  districts  and  becanse  the  period  under  review  has 
been  an  abnormally  prosperous  one  in  the  agricultural  sections. 
It  is  not  believed,  if  a  complete  study  were  made  of  the  farmers 
situation  in  the  State  at  large,  for  other  periods,  and  particu- 
larly in  certain  districts  of  the  State,  that  any  such  relatively 
favorable  percentage  for  the  farmer  would  emerge. 

The  Relation  of  Real-Estate  Taxes  to  Net  Income  of 
Other  Businesses. —  The  facts  presented  in  this  section  and  the 
preceding  one  are  of  interest  when  compared  with  similar  data  for 
other  businesses.  Figures  which  are  roughly  comparable  are  found 
in  Part  II  of  this  report  for  mercantile  and  manufacturing  cor- 
porations, financial  institutions  and  public  utilities.  The  per- 
centage of  net  income  paid  in  property  taxes  for  such  companies 
are  as  follows: 

Mercantile  and  manufacturing  corporation.  ...  4.5  per  cent. 
Financial  institutions : 

National  banks    1.5  per  cent. 

State  banks 3.5  per  cent. 

Trust  companies 4.1  per  cent. 

Savings  banks    3.6  per  cent. 

Public  utilities : 

Steam  railroads   24.6  per  cent. 

Electric  railways   38.05  per  cent. 

Telephone  and  telegraph  companies 12.1  per  cent. 

Gas  and  electric  companies 20.5  per  cent. 

In  the  case  of  the  public  utilities,  special  franchises,  including 
intangible  elements,  are  taxed  as  real  estate.  The  committee  pro- 
poses a  change  *  in  the  direction  of  a  more  strict  definition  of  the 
real  estate  of  public  utilities,  the  recognition  of  real-estate  taxes 
as  expenses  in  arriving  at  net  business  income  and  a  business  tax 
applying  to  all  net  business  income  so  defined.  It  favors  a  reduc- 
tion in  the  tax  on  real  estate. f    It  does  not  favor  the  recognition 

♦  C/.  infra,  p.  109. 
t  Cf.  infra,  p.  67. 


1/ 


57 

of  the  real-estate  tax  as  a  business  tax  and  the  modification  of  the 
rates  of  the  business  income  tax  because  of  varvini?  amounts  of 
real  estate  used  in  the  various  businesses.  This  position  is  based 
in  part  upon  the  conviction  that  all  charges  connected  with  real 
estate  used  in  a  business,  including  the  taxes  on  such  real  estate, 
are  (except  in  so  far  as  they  are  capitalized)  ordinarily  passed 
on  to  consumers  in  the  form  of  higher  prices  and,  if  they  are  kept 
within  reasonable  limits,  form  a  proper  element  in  the  charge 
for  commodities.  The  competitive  significance  of  such  taxes  is 
believed  to  be  slight  in  most  cases. 

The  Burden  on  Home-Owners  and  Rent-Payers. —  The 
Committee  is  convinced  that  the  advance  in  the  rates  of  the  real- 
estate  tax  has  worked  a  real  hardship  upon  the  small  home-owner 
and  the  rent-payer.  The  man  who  owns  his  home,  particularly  if 
he  purchased  it  some  years  ago,  has  been  forced  to  absorb  an  in- 
creased expense  which  is  so  great  as  to  justify  real  concern  on 
the  part  of  all  who  believe  that  home-ownership  is  to  be  encour- 
aged as  wholesome  and  desirable  from  the  general  social  and 
political  point  of  view. 

The  rent-payer,  also,  has  not  escaped  unscathed.  There  is  every 
reason  to  believe  that,  under  the  conditions  of  restricted  supply 
which  have  existed,  the  full  increase  in  at  least  that  ]K)rtion  of 
the  tax  which  rests  on  improvements  has  been  j)asseil  on 
by  the  owner  of  rented  property  to  his  tenant.  The  burden  is 
not  eliminated  merely  because  it  is  concealed  in  a  rental  payment. 

Conclusions  and  Recommendations  with  Respect  to  the 
Real-Estate  Burden. — The  committee  is  convinced  that  steps 
should  be  taken  at  once  to  arrest  the  rapid  growth  of  the  tax  rates 
on  real  estate.  As  an  immediate  and  direct  contribution  toward 
this  end  we  recommend  that  the  State  so  readjust  its  revenues  as 
to  elimirmte  at  the  earliest  possible  moment  the  State  direct  tax 
on  real  estate.  We  are  not  prepared  at  this  time  to  suggest  the 
permanent  renouncement  by  the  State  of  this  source  of  revenue. 
It  may  be  that  in  the  final  readjustment  the  State  should  share 
the  yield  of  the  real  estate  tax.  We,  further,  recommend  that  a 
thorough  study  he  made  of  local  revenues  and  expenditures  with 
a  view  to  promoting  retrenchment  and  efficiency  and  that,  if  su^h 


68  .  .  • 

a  survey  reveals  the  necessity  and  desirability  for  such  action, 
the  revenues  of  the  looalities  he  so  adjusted  as  to  lessen  still  further 
the  burden  on  real  estate  now  borne  by  the  farmer,  the  business^ 
man,  the  home-owner  and  rent-payer. 

The  Committee  has  little  confidence  in  measures  imposing 
arbitrary  limitations  upon  the  tax  rate.  Such  limitations  usually 
have  not  worked  well  in  practice  and  offer  no  real  solution  of  the 
problem  of  control  of  expenditure. 

The  consideration  which  the  Committee  has  given  to  the  prob- 
lem has  impressed  it  with  the  desirability  of  bringing  about  a 
higher  degree  of  stabilization  in  the  real-estate  tax.  While  the 
recent  abrupt  increase  in  rates  may  not  prove  to  be  permanent, 
it  has  tended  to  disturb  confidence  in  real  estate  as  an  investment. 
People  tend  to  become  distrustful  of  the  advantages  of  home- 
ownership  under  the  conditions  which  exist.  Keal  estate  has  been 
in  a  very  exposed  position.  It  has  acted  the  part  of  a  battalion 
of  "  shock-troops."  Great  advantages  would  flow  from  a  more 
conventionalized  rate  on  real  estate.  It  is  not  desirable  in  the 
opinion  of  the  Committee  to  fix  an  absolutely  uniform  rate  on  real 
estate  either  in  the  fonii  of  a  required  or  of  a  maximum  rate. 
The  remedy  should  rather  take  the  form  of  making  the  entire  tax 
system  more  flexible  so  that  the  rates  of  business  taxes  and  per- 
sonal income  taxes  would  be  elastic  as  well  as  the  real-estate 
taxes.  All  taxpayers,  not  merely  realty  owners,  should  be  called 
upon  for  special  effort  in  time  of  need. 

The  administration  of  the  real-estate  tax. —  There  is  need 
for  improvement  in  the  machinery  of  local  assessment.  It  is 
true  that  perceptible  progress  has  been  made  in  the  last  few 
years,  due  largely  to  the  influence  of  the  arrangement  for  the 
distribution  of  the  yield  of  personal  income  tax  and  mortgage 
taxes.  The  fact  that  the  community  receives  a  larger  share  of 
these  taxes,  when  it  assesses  its  real  estate  at  high  value,  has  been 
a  stimulating  influence  toward  a  more  accurate  and  full  assess- 
ment of  such  property.  However,  evidence  submitted  to  the 
Committee  shows  that  assessments  are  in  many  places  still  far 
l)elow  full  value  and  are  veiy  unequal  both  as  between  the  differ- 
ent political  subdivisions  and  as  between  the  different  taxpayers. 
Certain  of  the  public  utilities  complain  bitterly  regarding  what 


69 


they  allege  to  be  discrimination  in  local  assessment  of  their  prop- 
erty. Certain  other  utilities  arouse  apprehension  in  our  minds 
by  their  insistence  that  their  "  present  highly  satisfactory  under- 
standings with  local  assessors"  be  not  rudely  disturbed.  The 
Committee  believes  that  the  real  solution  for  this  problem  will 
not  be  found  until  the  larger  administration  units  are  established 
for  tax  purposes,  and  until  the  assessment  function  is  placed  in 
the  hands  of  skilled,  full-time  assessors  who  will  operate  under  a 
considerable  degree  of  central  supervision  and  control. 

How  far  it  is  possible  to  go  at  this  time  in  the  direction  of 
improving  this  situation  is  not  clear.    It  is  highly  important  that 
something  be   done  in  this   direction  in   case   the   Committee's 
recommendation  is  adopted  with  respect  to  the  central  valuation 
of  real  estate  belonging  to  public-utility  corporations.*    There  is 
a  difference  of  opinion  as  to  how  far  the  home-rule  provision  in 
the  Constitution  will  prevent  the  establishment  of  central  super- 
vision   and    control    of   real-estate    assessments.      It    should    be 
pointed  out,  however,  that  in  Wisconsin,  where  the  constitutional 
provision  regarding  home  rule  is  exactly  the  same  as  ours,  it  has 
been  found  possible  to  reach  a  very  high  standard  of  assessment 
with  locally-elected  assessors  operating  under  the  direction  and, 
to  some  extent,  under  the  control  of  their  tax  commission.     More- 
over, the  home-rule  provision  has  not  prevented  the  centralization 
of  the  assessment  of  the  real  estate  of  public  utilities  in  Wiscon- 
sin.   In  order  that  a  firm  foundation  may  be  laid  for  the  reform 
of   the   real    estate    assessments    in    this    State,    the    Committee 
recommends  that  a  constitutional  amendment  be  mbmitted  which 
will  make  possible  a  thoroughgoing  reform  of  real  estate  assess- 
ments through  the  establishment  of  larger  tax  districts,  officered 
by  skilled  assessors,  functioning  under  a  higher  degree  of  central 
supervision  and  control.    The  Committee  believes  that  an  amend- 
ment like  the  following  would  meet  the  situation. 

Section  1.  The  power  of  taxation  shall  never  be  surrendered,  suspended  or 
contracted  away.  Taxes  shall  be  imposed  by  general  laws  and  for  public 
purposes  only.  Hereafter  no  exemption  from  taxation  shall  be  granted  exceot 
by  general  laws.  *^ 

§  2.   The  legislature  may  provide  for  taxation  based  on  property,  incomes 
licenses  or  franchises  and  that  such  taxation  shall  be  in  lieu  of  other  taxation 
except  that  real  property  shall  be  subject  to  taxation  for  local  purposes  and 

♦  Cf.  in/rCt  p.  109. 


60  . 

be  taxed  by  local  officers  [to  the  same  extent  as  heretofore],  provided  however 
that  nothing  herein  or  elsewhere  in  this  constitution  shall  be  held  to  prevent 
the  legislature  from  providing  by  general  law  how  public  service  corporations 
operating  continuous  lines  or  routes  in  more  than  two  counties  not  wholly 
included  in  a  city,  and  the  property  of  such  corporations,  shall  be  taxed  and 
how  such  taxes  shall  be  collected  and  for  what  purposes  they  shall  be  used. 

§  3.  For  the  assessment  of  real  property  heretofore  locallv  assessed,  the 
legislature  may  establish  the  county  as  a  tax  district;  but  no  county  shall 
become  a  tax  district  until  a  proposition  therefor  shall  have  been  adopted 
by  a  vote  of  a  majority  of  the  electors  voting  thereon  in  such  county  at  an 
election  for  which  provision  shall  be  made  by  law.  The  tax  officers  in  such 
county  shall  be  elected  by  the  electors  of  such  county  or  appointed  by  such 
authorities  thereof  as  shall  be  designated  by  law.  Nothing  in  this  section 
shall  prevent  the  establishment  in  any  city  of  a  tax  district  without  such  vote. 

§  4.  The  legislature  may  provide  that  the  assessment-roll  of  a  tax  district 
shall  serve  for  all  the  civil  divisions  wholly  within  its  boundaries. 

§  5.  The  legislature  may  provide  that  assessment  by  local  officers  within  a 
county  may  be  reviewed  by  county  officers  in  such  county  to  be  elected  by  the 
electors  thereof  or  appointed  by  such  authorities  thereof  as  shall  be  deaie- 
nated  bv  law.*  ® 

It  should  be  noted  that  the  adoption  by  the  Legislature  of  1921 
of  the  Committee's  recommendation  that  cities  be  authorized  to 
reorganize  their  assessment  departments  has  already  prepared  the 
way  for  a  substantial  reform  of  city  assessment  methods. 

The  machinery  for  appeals  from  real-estate  assessments 
and  for  the  collection  of  property  taxes  should  also  be  overhauled. 
The  present  county  boards  of  equalization,  Avith  a  few  outstanding 
exceptions,  appear  to  function  in  a  manner  which  is  not  entirely 
satisfactory.  Complaint  is  made  with  regard  to  the  fact  that 
political  pressure  is  brought  to  bear  so  as  to  affect  the  ratings 
given  assessments  of  the  various  toAvns.  This  situation  would, 
of  course,  be  met  by  the  establishment  of  county  assessment  units. 
A  very  ridiculous  situation  has  been  revealed  by  the  testimony 
of  certain  of  the  public  utilities  in  respect  to  the  collection  of  the 
taxes,  particularly  of  the  school  taxes.  One  company  testified 
that  it  was  necessary  for  it  to  keep  in  touch  with  tax  collectors 
in  more  than  forty-nine  hundred  districts  of  the  State.  These 
collectors  change  from  year  to  year  and  are  often  anything  but 
businesslike  in  the  conduct  of  their  offices.  This  brings  about  a 
situation  where  it  often  costs  the  utility  more  to  pay  the  tax  than 
the  tax  itself  amounts  to.  If  nothing  more  fundamental  can  be 
done  immediately  the  Committee  recommends  that  at  least  the 
statutes  he  so  changed  as  to  centralize  the  collection  of  school 

*  This  is  the  form  of  amendment  submitted  by  the  chairman  of  the  Committee  on  ConatitutinnA  I 
Amendments  to  the  Seventh  State  Conference  op  Taxation,  vommiiipe  pn  ^onnmiiQWi  I 


'  61 

taxes  levied  on  the  property  of  public  utilities.  This  would  re- 
quire the  amendment  of  sections  427  and  428  of  the  Education 
Law  so  as  to  require  collectors  of  school  taxes  to  notify  the 
county  treasurers  of  the  amount  of  the  school  taxes,  the  amount 
of  assessments  and  the  rate.  It  would  require  the  county  treas- 
urers to  aggregate  these  taxes  and  to  collect  them  from  the  utili- 
ties. The  utilities  state  that,  even  though  this  would  require  an 
increase  in  collection  fees  so  as  to  provide  remuneration  for  the 
county  treasurers  for  the  effort  involved  in  collecting  these  taxes, 
they  would  much  prefer  to  have  the  centralized  county  collection 
and  pay  the  additional  fee. 

In  a  later  section  the  Committee  recommends  that  provision  be 
made  which  will  enable  the  Tax  Commission  to  render  aid  to  the 
local  assessors  in  the  valuation  of  the  property  of  public  utilities.* 

•  Cf.  infra,  p.  109. 


Exemptions 

The  problem  of  tax  exemptions  in  New  York  is  increasing  in 
serionsness.     A  large  and  growing  proportion  of  property  and 
income  is  exempted  from  direct  State  taxation  -  of  ten,  in  the 
Committee  s  opinion,  without  adequate  justification  —  and  conse- 
quently the  burden  of  taxation  tends  constantly  to  fall  on  a  rela- 
tively narrowing  base.     The  income  tax  is  comparatively  new  but 
there  have  already  been  strong  efforts  to  secure  generous  exemp- 
tions.    Property-tax  exemptions  are  growing  steadily.*     Many 
forms  of  property,  notably  intangibles,  have  been  withdrawn  from 
this  tax  m  order  to  reach  them  more  effectively  in  other  ways- 
but  many  additions  to  the  list  of  exemptions  (among  the  most 
recent,  new  buildings  to  be  used  for  dwellings)  are  exemptions 
pure  and  simple.     No  other  form  of  taxation  of  this  property  has 
been  substituted. 

Exemptions  from  the  property  tax.—  The  Facts  RECARniNG 
Pbopertt-Tax  Exemptions.— The  classes  of  property  now 
exempt  from  all  taxation  are  as  follows: 

^  1.  Property  of  the  United  States,  State  (other  than  forest  and 
wild  lands),  and  municipal  corporations  (except  property  outside 
of  municipal  limits)  (Tax  Law,t  sec.  4,  subdivs.  1,  2,  3)  ; 

2.  Indian  reservation  (Sec.  4,  subdiv.  4) ; 

3.  All  property  exempt  by  law  from  execution  other  than  an 
exempt  homestead  (including  real  property  purchased  with  pen- 
sion money  to  the  amount  of  $5,000)  (Sec.  4,  snbdiv.  .5)  ; 

4.  Forest  lands  planted  and  registered  (Sees.  16,  17;  Conserva- 
tion Law,  Sec.  57) ; 

5.  Real  and  personal  property  of  organizations  for  moral  and 
mental  improvement,  religious,  charitable,  hospital,  educational, 

«/ C^ISffet^'^rJ^ciXaK^*'  °"  """^"^  "-.pt^llfrom  taxation,  18fl0..9I2.    Bureau 

United  New 

1880. . .  States  York 

1900...::: :::::: ^»       «•« 

1004  7.0  7.9 

1912  6.4  9.0 

6.6  12.4 


t  Citations  in  this  list  are  to  the  Tax  Law  unless  otherwise  stated. 

[62] 


63 

fraternal  benefit  and  cemetery  purposes  when  necessary  for  the 
purpose  and  not  operated  for  a  profit  (Sec.  4,  subdiv.  7)  ; 

6.  Kcal  estate  of  religious  corporations  used  by  ofliciatiiig 
clergymen  up  to  $2,000  (JSec.  4,  subdiv.  9)  ; 

7.  Property  of  priest  or  minister  (and  widow)  up  to  $1,500 
(if  application  for  such  exemption  is  made)  (Sec.  4,  subdiv.  11)  ; 

8.  Property  of  agricultural  societies  used  for  exhibition  pur- 
poses (Sec.  4,  subdiv.  10) ; 

9.  Eeal  property  of  incorporated  volunteer  firemen  up  to 
$15,000  (Sec.  4,  subdiv.  8) ; 

10.  Personal  property  in  excess  of  $100,000  of  mutual  life 
insurance  corporations  incorporated  in  this  State  before  1849 
(Sec.  4) ; 

11.  Real  estate  from  which  no  income  is  derived  and  personalty 
of  medical  societies,  not  to  exceed  $150,000  in  counties  of  Kin^ 
and  :N'ew  York  and  $50,000  elsewhere;  and  pharmaceutical 
societies,  not  to  exceed  $100,000  in  Kings  and  :Niew  York  and 
$50,000  elsewhere  (Sec.  4,  subdivs.  18,  19) ; 

12.  Household  furniture  and  personal  effects  to  value  of  $1,000 
(Sec.  4,  subdiv.  17)  ; 

13.  Vessels  registered  in  J^ew  York  and  owned  by  New  York 
corporations  or  American  citizens  until  1923  (Sec.  4,  subdiv.  12)  ; 

14.  Property  of  plank  road  or  turnpike  corporations  outside 
of  city  and  villages  until  surplus  annual  receipts  shall  exceed 
7  per  cent  of  first  cost  (Transportation  Corp.,  sec.  141)  ; 

15.  Villages  may  exempt  property  of  volunteer  firemen  up  to 
$500  and  all  real  and  personal  property  of  such  companies  (Vil- 
lage Law,  sec.  132) ; 

16.  Local  financial  officials  may  exempt  property  of  academy 
of  music  from  local  taxes  (Sec.  4,  subdiv.  20)  and 

17.  JS^'ew  buildings  for  dwellings  completed  since  April  1,  1920, 
or  started  before  April  1,  1922,  may  be  exempted  locally  until 
January  1,  1932  (Sec.  4-b). 

Those  classes  of  property  exempted  from  the  property  tax,  to 
be  taxed  in  other  ways,  are : 

1.  All  intangibles  (Sec.  4-a) ; 

2.  Motor  vehicles  not  in  the  hands  of  dealers  (Highway  Law, 
sees.  282-287); 


'   ■    ■     '      "  M  .    ..     .      ' 

t  J'on'^'ir"^'^''  To  °''''*^  "^  corporations  paying  a  franchise 
tax  on  net  income  (Sec.  219-j); 

4.  All  personalty  of  trust  and  investment  companies  exempt 
from  local  taxation  (Sec.  205)  ;  ^ 

5.  Personal  property  of  banks  (Sec.  24-c)  and 

6.  Tangible  personally  of  corporations  ta.xed  under  capital  stock 
ta^  exempt  from  State  (not  local)  t^x  (Sec.  205). 

in  Aw\*"  w  '  '-""'"P*'^'  ^  '""•«'  P"-*  °f  «"  °f  tJ'«  real  estate 
n  Aew  lork  is  not  taxable.  The  property  tax  reaches  no  in- 
tangible personalty,  and  but  little  tangible  personalty;  for  every 
private  individual  is  exempt  up  to  $1,000,  and  some  priviWd 
classes  to  a  larger  amount;  and  the  only  corporations  stfll  subjct 
to  local  ta.xation  on  personalty  are  public  utilities,  real-estate  com- 
panies, and  holding  companies. 

th,f  r  ''^f}""^'^^  "^*  "f  exemptions  it  is  not  surprising  to  find 

^e  ter   e"  ".1  '"'"'*  '"  *^"^''^  ^^^^^^^  ^  ^^'«  ^tlte  was 
oT    ;  r?  S,     '  '""'  '*  '^'  ^^"*  exemptions,  than  in  any 

St  otn  nnn    i,    """"'  "^  P""""^'*'^  '^"^'^'^  ^'^  ^^^O  was  only 
$255,000  OOO^Between  one-fourth  and  one-fifth  of  all  real  estat. 

IS  exempt.t    Comparable  figures  are  not  available  for  other  states 

since  the  few  states  that  record  the  value  of  exempt  property 

clarify  It  differently;   but   such   figures  as  have  already  been 

quoted  seem  to  indicate  that  a  larger  proportion  of  real  estate  also 

IS  exempt  in  New  York  than  in  other  states. 

f£pr^^pM:^cir^^^^  ?-^iS^^4"r&  fn-l'i  *?«  »^^«^-t  ra^io  was 
Jersey.  7,1.  (Census  of  Wealth,  Debt  ar^T^ilf^)  Th^^^^  ^«>"«''  §-8:  Maryland,  si:  New 
taxation  ,n  New  York  in  1919  was  22.82  as  comZ-id  v^fh  §«[««"*»««  of  real  estate  exempt  from 

eStSl^v'^V^^t^-^  respectively  or  anXS^trin  ?92r'  Tif *'  ^"^  ^P-  ^'  ^/«*  ^^^  New 
exempted  in  New  York  is  increasing,  being  onlv  18  5?  nir  i^^-  Tm«P'"°.?P'"*'o»»  of  real  estate 
State  Tax  Commission,  Rhode  Island  Board  of  Ti«r^J«*  '"  ^^19'  ^Repo^s  of  New  York 
^AT^l'^  Assessment.)  **  "°*'**  "^  ^^  Commissioners.  New  Jersey  State  Board  of 

(t)  The  following  figures  show  the  relationship  of  exempt  real  estate  to  all  real  estate: 


Total  assessed 
value  of  taxable 

Ig^K  real  estate 

1885.'  .'.■.■ 92. 108,325,872 

1900..  2,899,899,062 

1905. 5,093,025,771 

1910. . . . ; ; 7,312,621,452 

1915...  9,639,001,868 

1920...      11.335.638,806 

14,595.726.491 

The  actual  value  * 
value  of  taxable  real  ( 
less  carefully  valued  i 
low. 


Assessed  value 
of  exempt 
real  estate 

$200,000,000 
500.000.000 
1,000,000,000 
1,389,353.000 
1,788,095,746 
2,521,705,003 
2,996.566,422 


Ratio  of 
exempt  to 

taxable 
real  estate 

9.5 
17.2 
19.6 
19.0 
18.5 
22.2 
20.5 


I 


65 

Three-fourths  of  all  of  the  real  estate  which  is  not  taxed  under 
the  property  tax  is  the  property  of  the  various  governmental  juris- 
dictions. The  remaining  fourth  is  privately  owned,  mostly  the 
property  of  religious,  charitaWe  and  educational  associations. 
The  cities  own  nearly  two-thirds  of  all  exempted  real  estate.* 

The  proportion  of  real  estate  exempted  from  ta:xation  in  the 
different  counties  varies  from  2.6  per  cent  to  55.6  per  cent. 

♦Exempted  real  estate  in  New  York,  1919,  classified  according  to  ownership.     (Tax  Com* 
mission  Report,  1919.) 

Value 
(000.000 
Owner 

Total 

United  States 

State 

Counties [ ,] 

Towns ,[[[ 

Villages !..!!!!!!!! 

School  districts 

Cities '..'... 

Private !'.!'.!*.."..! 

Exempted  real  estate  in  New  York,  1919.  classified  according  to  use. 
Commission  Report,  1919.) 

Use 


Total 

Educational. 

Universities,  colleges  and  normal  schools. 

Public  schools 

Other  schools 

Libraries 

History  and  art 

Parks  and  playgrounds 


Agricultural 

Religious 

Places  of  religious  worship 

Property  occupied  by  clergy .  .  .  . 

Property  owned  by  clergy 

Moral  and  mental  improvement. 

Fraternal  and  benevolent 

Charitable 

County  and  city  homes 

Children's  homes 

Soldiers'  and  sailors'  homes 

Curative 

Protective 

Defensive 

Public  utilities 

Water  systems 

Lighting 

Sewerage 

Public  baths 

Public  markets 

Bridges  and  docks 

Subways 

Administration  buildings 

Miscellaneous 

Cemeteries 

Fish  hatcheries 

Indian  reservations 

Reforested  lands 

Pension  money  property 


omitted) 

Percent 

$2,881 

100.00 

127 

4.41 

lU 

4.30 

V 

.95 

14 

.49 

11 

.38 

28 

.97 

1.837 

63.75 

713 

24.75 

(From  data   in  Tax 

Value 

(000,000 

omitted) 

Per  cent 

$2,881 

100.00 

1.085 

37.66 

86 

2.98 

195 

6.77 

49 

1.70 

37 

1.28 

6 

.20 

712 

24.72 

1 

.04 

338 

11.73 

294 

10.19 

7 

.23 

2 

.06 

36 

1.24 

55 

1.92 

29 

1.00 

5 

.17 

22 

.78 

1 

.05 

106 

3.69 

73 

2.54 

127 

4.40 

8S» 

29.14 

143 

4.95 

3 

.10 

88 

3.06 

3 

.12 

5 

.17 

334 

11.60 

263 

9.14 

141 

4.90 

86 

2.98 

73 

2.54 

t 

t 

1 

.05 

t 

t 

11 

.39 

t  Fish  hatcheries,  129,000;  reforested  lands,  18,033;  both  less  than  one  one-hundredth  of  one 
per  cent. 


I 


"4.    . 


I'V 


66 

The  three  counties  with  the  largest  proportion  of  untaxed  real 
estate  in  1919  were  Albany,  55.6  per  cent;  Clinton,  43.1  per  cent, 
and  Wayne,  30.74  per  cent.  All  of  these  have  a  large  proportion 
of  State  property.  The  three  counties  with  the  smallest  propor- 
tion of  untaxed  property  in  the  same  year  were  Hamilton,  2.64 
per  cent;  Putnam,  4.91  per  cent,  and  Nassau,  5.47  per  cent. 
There  is  little  or  no  State  or  national  property  in  these  three 
counties.* 

Conclusions  and  Recommendations  Regarding  Property- 
Tax  Exemptions. —  The  Committee  realizes  that  the  exempt 
status  of  much  of  the  real  estate  now  free  of  tax  would  be  very 
difficult  to  alter  and  it  is  not  clear  as  to  how  far  it  is  wise  and 
desirable  to  go  at  the  present  time  in  the  direction  of  reducing 
property-tax  exemptions.  In  general  it  is  inclined  to  believe  that 
there  is  a  working  tendency,  which  is  likely  finally  to  prevail,  in 
the  direction  of  the  taxation  of  all  private  real  estate  and  much 
public  real  estate.  Certainly  the  situation  has  reached  a  point 
where  proposals  for  further  exemptions  must  be  considered  in 
the  most  critical  spirit.  There  is  some  evidence  that  the  public 
is  becoming  aroused  concerning  the  state  of  affairs  and  that  there 
may  soon  develop  a  general  demand  for  fundamental  changes  in 
the  entire  exemption  policy  of  the  State. f 

The  Committee  believes  that  the  time  is  fast  approaching  when 
the  State  must  seriously  consider  the  possibility  of  developing 
still  further  the  precedent  established  in  permitting  its  forest  lands 
to  be  subjected  to  certain  types  of  local  taxation.  There  is  much 
sound  sense  in  the  view  that  all  publicly-owned  real  estate  should 
be  subject  to  the  real-estate  taxes  of  all  governmental  bodies  within 
whose  borders  it  lies,  except  the  taxes  imposed  by  that  govern- 
mental body  which  owns  the  property.  The  effect  of  adopting 
such  a  rule  would  lie  not  so  much  in  a  decrease  in  the  total  tax 
burden  as  in  a  more  fair  distribution  of  that  burden.  Certainly 
it  is  unfair,  for  example,  to  ask  the  residents  of  a  very  restricted 
section  to  pay  the  entire  local-government  costs  occasioned  by  the 

*  Tax  Commission  Report,  1919. 

t  For  example,  the  Committee  is  in  receipt  of  a  letter  from  Mr.  L.  L.  Benham,  Chairman  of  the 
Taxation  Committee  of  the  Rochester  Chamber  of  Commerce,  stating  that  the  individual  members 
of  the  committee  who  met  on  November  7th,  1921,  unanimously  ain'eed: 

(1)  That  the  general  principle  of  exemptions  was  inequitable; 

(2)  That  further  exemptions  should  not  be  passed; 

(3)  That  present  exemptions  should  be  repealed  so  far  as  practicable,  and 

(4)  That  there  should  be  no  extension  of  the  exemption  allowance  in  the  New  York  State 

income  tax. 


• 


67 

presence  of  an  institution  which  serves  the  interests  of  the  entire 
State.     A  complete  solution  could  be  completely  arrived  at,  of 
course,  only  through  the  co-operation  of  the  Federal  government. 
The  Committee  believes  further  that  the  rules  governing  the 
exemption  of  real  estate  of  charitable,  religious,  educational  and 
cemetery  associations  should  be  more  strictly  drawn.     It  should  be 
impossible  for  exemptions  to  cloak  real  estate  which  is  being 
utilized  for  a  business  purpose  for  private  gain.     The  Committee 
is  informed  that  in  some  cases  this  occurs  under  our  present 
statutes  —  for  example,  that  cemeteries  operated  as  private  profit- 
making  enterprises  and  schools  which  are  really  profitable  busi- 
nesses frequently  gain  exemption  under  the  law  as  it  now  stands. 
The  Committee  definitely  recommends  that  the  real  estate  of  such 
enterprises  he  svhjected  to  taxation. 

Income-tax  exemptions.—  Most  of  the  exemptions  under  the 
personal  income  tax  are  reasonable  and  conform  to  accepted 
standards.  There  are  two,  however,  which  are  open  to  criticism 
and  deserve  special  discussion  in  this  report.  These  are  the  per- 
sonal exemptions  and  the  exemption  of  interest  on  certain  govern- 
ment securities. 

The  Personal  Exemptions.— The  question  of  increasing  the 
personal  exemption  is  discussed  more  fully  in  a  later  section  of  this 
report,*  but  the  Committee  wishes  at  this  point  to  record  its  con- 
viction that  it  would  be  unwise  for  the  State  to  follow  the  prece- 
dent of  the  Federal  Revenue  Act  of  1921,  which  raises  the  exemp- 
tion of  the  head  of  a  family  in  certain  cases  to  $2,500  and  in- 
creases the  allowance  for  dependents. 

Exempt  Interest  on  Government  Securities. — Under  the 
existing  arrangement  the  United  States  refrains  from  placing  any 
tax  on  the  interest  on  the  securities  of  the  states  and  the  political 
subdivisions.  It  taxes  the  interest  on  certain  of  its  own  bonds 
within  specified  limitations.  This  State  exempts  the  interest  on 
the  securities  of  the  federal  government.  It  also  exempts  the  in- 
terest on  its  own  bonds  and  those  of  its  own  political  subdivisions. 
It  taxes  the  interest  on  the  securities  of  other  states  and  their 
subdivisions. 

The  exemption  of  interest  on  government  securities  has  had 
"^^^y  ^^^  effects  and,  in  the  opinion  of  the  Committee,  should  be 

♦  Cf.  infra,  p,  73  et  seq. 


l!      |( 


68 

entirely  abolished  under  both  federal  and  state  income  tax  laws. 
To  make  this  possible  an  amendment  to  the  federal  Constitution 
appears  to  be  necessary.  Representative  L.  T.  McFadden,  of 
Pennsylvania,  has  introduced  a  resolution  in  the  Congress  to 
amend  the  Constitution  and  it  is  possible  that  the  Legislature  of 
this  State  will  soon  be  called  upon  to  ratify  this  proposed  amend- 
ment or  one  similar  to  it.  The  Committee  strongly  recommends 
that  the  Legislature  give  its  approval  to  the  plan  which  contem- 
plates  reciprocal  action,  whereby  interest  on  the  securities  of  the 
Federal  government  are  rtmde  subject  to  the  State  income  tax,  and 
on  the  other  hand,  the  interest  on  the  securities  of  the  states  are 
to  be  rendered  subject  to  the  federal  income  tax. 

The  grounds  upon  which  this  recommendation  is  based  are 
fundamentally  very  simple  and  can  be  stated  in  a  few  words: 
(1)  these  tax-exempt  securities  permit  widespread  evasion  by  ; 
individual  taxpayers  of  just  tax  burdens;  (2)  they  permit  one 
governmental  body  to  profit  at  the  expense  of  another  and  at  the 
expense  of  the  interests  of  the  conununity  as  a  whole,  and  (3)  they 
put  private  borrowers,  upon  whose  prosperity  the  welfare  of  the 
State  in  large  measure  depends,  at  an  unfair  disadvantage. 

The  complete  demonstration  of  these  three  propositions  would 
require  more  space  than  is  available  for  the  purpose  in  this  report 
and  it  is  unnecessary  here  to  develop  the  argument  elaborately 
because  such  analyses  by  qualified  tax  authorities  have  been  pre- 
sented elsewhere  and  are  generally  accepted  by  all  careful  students 
who  have  examined  the  problem.     A  mere  summary  must  suffice 

here. 

First,  then,  how  do  tax-exempt  securities  permit  individual 
taxpayers  to  evade  their  just  burdens  ?  The  answer  lies  in  the 
fact  that  the  tax-exempt  securities,  issued  in  the  quantities  which 
are  floated  in  this  country,  nullify  progressive  income  tax  rates. 
If  the  principle  of  progression  in  income  tax  rates  is  just,  the 
issuance  of  tax-exempt  securities  is  unjust. 

The  supposed  reason  underlying  the  practice  of  exempting 
government  securities  is  that  to  tax  them  means  merely  to  take 
money  out  of  one  pocket  and  put  it  into  another.  The  exemption 
from  taxation  is  supposed  to  be  compensated  for  by  decreased 
interest  rates  and  improved  market  standing  for  the  government 


\ 


ij 


69 

issues.  But  to  make  this  work  out  there  must  always  be  enough 
persons  who  are  subject  to  the  tax,  and  who  are  also  investors, 
to  absorb  all  the  honds.  A  progressive  tax  creates  what  is  equiva- 
lent to  groups  of  taxpayers  subject  to  differing  taxes.  Exemption 
from  income  tax  is  a  privilege  of  different  worth  to  each  surtax 
group  of  income-tax-payers.  It  is  much  more  valuable  to  a  man 
who  is  subject  to  a  50  per  cent  rate  than  to  a  man  who  is  subject 
to  a  10  per  cent  rate.  Just  so  soon  as  the  quantity  of  tax-exempt 
bonds  becomes  too  great  to  be  absorbed  by  investors  who  are 
members  of  the  highest  surtax  group,  the  members  of  the  next 
highest  surtax  group,  to  whom  the  tax-exempt  privilege  is  less 
important,  become  the  value-determining  factors.  When  this 
happens  those  in  the  highest  surtax  group  can  buy  the  bonds  at 
lower  prices  than  they  would  otherwise  have  to  pay.  The  market 
price  of  the  bonds  sinks.  At  the  same  time  it  becomes  unprofit- 
able (instead  of  a  matter  of  indifference)  for  them  to  invest  in 
securities  whose  income  is  subject  to  tax.  The  person  in  the 
highest  surtax  group  receives  an  income  on  which  he  does  not 
pay,  either  in  tax,  in  reduced  interest,  or  higher  price  for  the 
bond,  the  equivalent  of  what  he  should  pay  under  the  scale  of  the 
progressive  income  tax.  Thus  he  in  real  truth  evades  the  tax  — 
legally,  of  course,  but  nevertheless  actually. 

This  is  precisely  what  has  happened  in  this  country  on  a  large 
scale.  The  market  has  been  flooded  with  tax-exempt  government 
bonds  until  the  saturation  point  has  been  reached  not  merely 
among  those  in  the  highest  surtax  groups,  but  among  those  who 
are  subject  to  only  moderate  rates.  It  now  is  a  paying  proposition 
for  men  of  relatively  small  incomes  to  invest  in  government  tax- 
exempt  bonds.  It  is  the  worth  of  these  bonds  to  these  small  men 
which  determines  the  market  price.  The  men  of  large  incomes 
reap  for  their  own  profit  the  difference  between  the  price  they  now 
have  to  pay  and  full  value  of  the  tax  exemption  to  them,  burdened 
as  they  are  with  their  high  surtax  rates.  Thus  tax-exempt  security 
flattens  out  the  progressive  scale  of  income  tax  rates  and  provides 
an  open  door  to  tax  evasion  or  avoidance. 

From  what  has  already  been  said  the  second  point  follows  — 
that  these  interest  exemptions  on  government  securities  permit 
one  government  body  to  profit  at  the  expense  of  another 
and   at   the  expense   of   the    interests   of   the  community   as    a 


70 


whole.  For  example,  even  if  the  United  States  government 
were  the  only  authority  which  issued  bonds  and  imposed 
progressive  income  taxes,  the  widespread  evasion  would  de- 
velop as  described.  Heavy  taxpayers  would  buy  themselves 
free  of  part  of  the  tax  without  paying  an  equivalent  amount 
in  the  form  of  an  advanced  price  of  the  security.  But  not  only 
can  the  United  States  itself  issue  bonds  which  are  exempt  from 
its  own  tax,  but,  due  to  the  constitutional  situation,  every  state 
and  every  little  subdivision  of  a  state  may  issue  its  securities 
exempt  from  federal  income  taxes.  In  other  words,  a  city  like 
New  York  may  capitalize  the  height  of  the  federal  income  tax 
rates  and  utilize  them  as  a  fiscal  resource  to  secure  better  terms 
for  its  bonds  than  it  could  otherwise  obtain,  entirelv  without  the 
consent  of  the  federal  government  and  in  spite  of  the  fact  that 
the  issuance  of  securities  carrying  this  exemption  from  the  fed- 
eral burden  increases  the  supply  and  tends,  therefore,  to  reduce 
the  market  price  of  all  tax-exempt  bonds.  In  plain  words,  the 
present  arrangement  offers  the  states  and  localities  an  oppor- 
tunity to  steal  a  portion  of  the  federal  income  taxes.  Moreover, 
in  so  doing  they  flatten  out  the  progressive  curve  of  the  income 
tax  rates,  destroying  in  a  measure  the  equity  of  the  tax  system, 
and  thus  profit  at  the  expense  of  the  community  as  a  whole.  The 
temptation  to  extravagance  with  money  borrowed  on  these  terms 
is  all  too  apparent. 

This,  however,  is  not  even  yet  the  complete  story.  There  is, 
in  reality,  no  sharp  separation  of  interest  here.  Citizens  of  New 
York  are  citizens  of  the  United  States.  It  has  been  shown  that  all 
they  gain  as  citizens  of  New  York  is  lost  as  citizens  of  the  United 
States  and  more  beside. 

Or,  looking  at  it  in  a  different  way,  nothing  has  been  said  of  the 
disadvantage  to  the  State  of  New  York  because  of  her  inability 
to  tax  federal  bonds.  Moreover,  who  shall  sav  whether  federal 
income  tax  rates  will  always  remain  high  and  state  income  tax 
rates  low? 

Finally,  private  borrowers  suffer  a  disadvantage  when  thev 
must  compete  with  tax-exempt  securities.  Assume  the  case  of  a 
taxpayer  in  the  50  per  cent  surtax  class  who  purchases  a  tax- 
exempt  bond  at  a  price  determined  by  the  worth  of  that  bond  to 


71 


a  taxpayer  in  the  20  per  cent  surtax  group.  We  have  seen  that 
the  difference  between  the  real  worth  of  the  bond  to  him  and  the 
price  which  he  pays  represents  what  we  have  thus  far  called  an 
income  tax  "evasion."  That  difference,  or  surplus,  acts,  how- 
ever, as  a  penalty  to  prevent  him  from  investing  in  any  but  tax- 
exempt  bonds.  As  a  consequence,  men  of  large  means  have  found 
it  to  be  economic  insanity  for  them  to  distribute  their  investments 
in  a  normal  manner.  Public  borrowers  are  favored  and  private 
borrowers  discriminated  against,  resulting  in  much  hardship  to 
interests  like  the  electric  railway  industry  especially,  which  must, 
as  a  private  boi-rower,  seek  funds  to  compete  with  a  municipaUy- 
owned  plant  financed  by  tax-exempt  securities. 

It  appears  to  the  Committee  that  the  only  salvation  from  this 
situation  is  (1)  to  insist  that  each  governmental  authority  pay  the 
current  competitive  rate  of  interest  on  its  borrowings  and  tax 
interest  under  its  income  tax  irrespective  of  its  source,  whether 
from  a  federal,  state,  local  or  private  security,  and  (2)  to  permit 
each  governmental  authority  to  apportion  its  taxes  as  precisely 
as  possible  according  to  tax-paying  ability  without  being  exposed 
to  the  danger  of  having  its  progressive  income  tax  rates  nullified 
by  the  issuance  of  tax-exempt  bonds  by  some  other  governmental 
authority.  Certainly  progress  does  not  lie  in  the  direction  of 
further  exemptions  but  rather  in  the  direction  of  the  elimination 
of  present  exemptions. 


Tf 


72 


The  Personal  Income  Tax 

With  respect  to  the  personal  income  tax  the  Committee  recom- 
mends that  no  change  he  made  at  this  time  in  the  rates  or  in  the 
persorml  exemptions,  hut  that  certain  minor  amendments  he 
adopted  which  are  needed  to  remove  technical  imperfections  in 
the  statute  or  are  rendered  desirable  by  the  passage  of  the  Rev- 
enue Act  of  1921  by  the  federal  government*  On  the  whole,  the 
personal  income  tax  appears  to  be  operating  smoothly  and  satis- 
factorily. 

The  relation  of  the  state  income  tax  to  the  federal  act.^ 
When  originally  drafted,  the  state  income  tax  law  followed  as 
closely  as  practicable  the  provisions  and  even  the  language  of 
the  federal  income  tax.  There  were  manifest  advantages  in  this 
course.  It  greatly  facilitated  the  administration  for  it  made  the 
state  law  much  more  readily  intelligible  to  the  taxpayer  who  was 
already  familiar  with  the  federal  law.  With  respect  to  a  number 
of  important  points,  however,  it  was  found  impossible  to  follow 
the  federal  law  and  procedure,  so  that  from  the  very  beginning 
certain  differences  and  exceptions  had  to  be  borne  in  mind  by 
the  taxpayer  when  attempting  to  comply  with  the  state  law.  The 
federal  government  has  recently  passed  the  Revenue  Act  of  1921 
which  makes  radical  changes  in  the  income  tax  and  the  question 
now  arises  as  to  how  far  this  state  should  modify  its  statute  to 
conform  to  the  federal  changes. 

While  deeply  impressed  by  the  desirability  of  uniformity  with 
the  federal  statute,  the  Committee  is  convinced  that  a  slavish 
copying  of  all  the  federal  changes  will  involve  very  serious  con- 
sequences to  the  state  income  tax.  In  the  first  place,  the  federal 
statute  has  been  subjected  to  constant  change.  Passed  in  1913, 
there  were  revisions  of  the  law  in  1916,  1917,  1918t  and  1921. 
There  is  said  to  be  a  possibility  of  further  revision  in  1922. 
Moreover,  many  of  the  recent  federal  changes  are  of  doubtful 
character,  e.  g.,  that  establishing  a  new  class  of  capital  gains 
which  complicates  the  procedure  in  order  to  establish  what  seems 
to  the  Committee  to  be  an  unfair  discrimination  against  earned 
income.      It   seems  clear  that  the  adoption   of  all   the  federal 

*  These  recommendations  originated  for  the  most  part  with  the  Income  Tax  Bureau  of  the  Tax 
Ueoartment  and  were  definitely  formulated  by  that  Bureau. 
t  The  Reyenue  Act  of  1918  did  not  become  a  law  until  1019 


73 


changes  will  delay  the  establishment  of  a  stable  and  fully-adjudi- 
cated state  income  tax  law  and  will  involve  the  incorporation  of 
elements  of  transitory  and  uncertain  character.  Since  some 
important  differences  from  the  federal  statute  must  necessarily 
exist  anyway  (because  of  the  different  date  from  which  gains 
are  measured  and  because  of  the  constitutional  limitations)  the 
Committee  believes  that  the  wise  course  for  the  state  to  follow  is 
to  scrutinize  very  carefully  the  federal  amendments  and  to  adopt 
only  those  which  appear  to  be  unquestionably  sound  and  which 
promise  substantial  improvements  in  the  state  law. 

The  personal  exemptions.— The  present  personal  exemptions 
under  the  state  personal  income  tax  are  $1,000  for  a  single  per- 
son, with  an  additional  $1,000  if  married  or  the  head  of  a  family, 
plus  $200  for  each  dependent.  The  new  federal  Kevenue  Act  of 
1921  increases  the  $200  dependent  exemption  to  $400  and  the 
$2,000  head-of-family  exemption  to  $2,500  for  those  whose 
income  is  less  than  $5,000. 

There  appears  to  be  some  sentiment  in  favor  of  increasing 
the  state  exemptions  to  the  new  level  of  the  federal  law  but,  in 
our  opinion,  this  sentiment  is  an  ill-founded  and  mistaken  one. 
In  the  first  place,  the  federal  change  was  dictated  by  considera- 
tions not  present  in  the  state  situation.  It  was  made  in  the 
course  of  a  revision  of  the  entire  range  of  rates  which  involved 
a  radical  reduction  in  the  heavy  surtaxes  on  large  incomes.  When 
it  was  decided  that  it  was  impracticable  to  reduce  the  federal 
normal  rate  of  4  per  cent,  the  only  rate  applying  to  the  small 
incomes,  the  increases  in  the  personal  exemptions  were  resorted 
to  in  an  effort  to  give  some  relief  to  these  small  incomes.  The 
state  income  tax  rates  are  already  very  low  and  stand  in  no  need 
of  revision.  It  is  not  unreasonable,  in  the  opinion  of  the  Com- 
mittee, to  ask  a  married  man  with  two  children  to  begin  to  pay 
a  small  tax  toward  the  support  of  state  and  local  government 
when  his  net  income  exceeds  $2,400,  especially  in  view  of  the 
fact  that  he  is  subject  to  practically  no  other  state  or  loc^l  taxes 
except  real-estate  taxes.  To  adopt  the  new  federal  exemptions 
such  a  man  would  pay  nothing  until  his  net  income  exceeded 
$3,300. 

Moreover,  the  present  state  personal  exemptions,  instead  of 


I        ! 


u 

being  niggardly,  are  as  a  matter  of  fact  very  liberal  indeed  when 
compared  with  those  given  in  other  states  and  in  foreign  coun- 
tries generally.  It  is  of  interest  to  note,  further,  that  the  Model 
Income  Tax  prepared  by  the  Committee  of  the  National  Tax 
Association  calls  for  maximum  exemptions  of  only  $600  (instead 
of  $1,000)  for  a  single  person,  $1,200  (instead  of  $2,000)  for 
a  husband  and  wife,  with  the  further  exemption  of  $200  for  each 
dependent.*  The  National  Tax  Association  Committee,  in  mak- 
ing its  recommendation,  observed  that  ^'  under  a  democratic  form 
of  government  it  is  desirable  to  exempt  as  few  people  as  possible 
from  the  necessity  of  making  a  direct  personal  contribution 
toward  the  support  of  the  state." 

It  must  be  borne  in  mind,  also,  that  the  period  of  war-time 
inflation  is  now  rapidly  passing  and  that,  with  the  return  of  the 
price-level  to  lower  altitudes,  the  need  for  higher  exemptions  is 
becoming  less  rather  than  more  urgent. 

Finally,  the  fiscal  aspect  of  the  proposal  is  a  serious  one.  The 
Income  Tax  Bureau  estimates  that  the  adoption  of  the  new 
federal  exemptions  would  reduce  the  yield  of  the  state  income 
tax  by  approximately  $4,000,000. 

The  minimum  income  tax. —  Instead  of  urging  further  exemp- 
tions from  the  income  tax  in  the  form  of  larger  personal  allow- 
ances, the  Committee  feels  impelled  to  call  attention  to  the  desir- 
ability of  taking  action  in  exactly  the  opposite  direction.  If 
the  income  tax  is  to  form  one  of  the  main  elements  in  the  per- 
manent system  of  state  and  local  revenues,  it  is  highly  important 
that  its  administration  be  strengthened  and  perfected.  The  ac- 
tivities of  the  Investigation  Division  of  the  S'tate  Income  Tax 
Bureau  have  revealed  the  fact  that  there  are  many  evasions  of 
the  tax  particularly  among  persons  whose  income  is  close  to  the 
exemption  limit.  As  a  means  of  assisting  the  Bureau  in  pre- 
venting evasion  as  well  as  a  means  of  securing  some  slight  con- 
tribution from  every  person  who  benefits  from  the  activities  of 
government,  the  Conmaittee  recommends  that  a  return  of  income 
he  required  of  every  resident  of  the  state  above  the  age  of  21  and 
that  in  cases  lahere  the  income  is  too  small  to  he  subject  to  tax 
that   a  small  filing  fee   or  minimum  income  tax  he  imposed. 

♦  Prdiminary  Report  of  th«  committee  appointed  by  the  National  Tax  Association  to  Prepare  a 
Plan  for  a  Model  Systm  of  State  and  Local  Taxation,  p.  IS. 


75 

Whether  the  minimum  income  tax  should  be  flat  or  roughly 
progressive  is  open  to  question.  The  Committee  is  inclined  to 
believe  that  a  simple  flat  fee  of  one  dollar  from  everyone  whose 
income  tax  does  not  exceed  that  amount  would  best  meet  the 
present  situation  in  this  State. 

The  Conamittee  is  not  unaware  of  the  serious  administrative 
obstacles  in  the  way  of  such  a  tax.  Its  administration  should  be 
primarily  in  the  hands  of  the  Income  Tax  Bureau.  Some  type 
of  readily  recognizable  receipt  would  have  to  be  devised.  In 
enforcing  the  act  it  might  be  possible  to  utilize  various  agencies, 
as  for  example,  the  election  oflicials,  the  police  and  the  employers 
of  labor.  Collection  should  be  made  by  state  officials  directly 
but  the  possession  of  a  receipt  for  the  current  period  might  be 
made  a  condition  to  voting  or  employment. 

Change  in  scope  and  application.— In  the  event  of  the  passage 
of  the  proposed  law  taxing  the  income  of  unincorporated  busi- 
nesses, it  is  recommended  that  the  income  accruing  to  non-resi- 
dents from  unincorporated  business  carried  on  in  New  York 
State  be  relieved  of  the  personal  income  tax  rates.     When  the 
personal  income  tax  law  was  passed  a  double  rule  of  situs  was 
adopted  which  brought  within  the  scope  of  the  tax  not  only  all 
income  accruing  to  residents  of  the  State  but  also  certain  types 
of  income  arising  within  the  State  accruing  to  non-iesidents.    In 
so  far  as  the  income  of  a  non-resident  arises  from  unincorpo- 
rated business  in  the  State  it  is  clear  that  it  should  not  be  sub- 
jected to  both  the  unincorporated  business  tax  rates  and  also  to 
the  progressive  personal  income  tax  rates.     The  proposed  new 
tax  on  unincorporated  business  income  can  be  justified  only  as 
a  substitute  for  the  present  non-resident  personal  income  tax  on 
such  profits. 

Test  of  residence.- Considerable  difficulty  and  injustice  has 
been  caused  by  the  rule  of  residence  under  the  personal  income 
tax  law  which  results  in  imposing  a  tax  on  the  full  year's  income 
of  every  person  who  at  any  time  during  the  last  six  months  of 
the  calendar  year  is  a  resident  of  the  State.  There  have  been 
a  number  of  cases  in  which  persons  who  have  already  paid  an 
income  tax  for  the  year  to  another  state  or  country  have  moved 
to  New  York  in  the  last  days  of  the  year  and  have  been  called 
upon  to  pay  a  tax  for  the  full  year  to  this  state  in  addition. 


■W  '. 


76 

There  have  also  been  evasions  of  the  law  by  persons  who  were  in 
fact  residents  but  who,  because  of  indefinite  definition,  have 
been  able  to  establish  a  technical  residence  elsewhere.  It  is  pro- 
posed  to  define  a  resident  cvs  ''  any  person  domiciled  in  the  State 
of  New  York,  and  any  other  person  who  maintains  a  permanent 
place  of  abode  within  the  State,  and  spends  in  the  aggregate  more 
than  seven  months  of  the  taxable  year  within  the  State." 

It  is  proposed  further  that,  in  case  of  changed  residence  dur- 
ing the  taxable  year,  the  person  be  taxed  as  a  resident  for  the 
time  during  which  he  actually  loas  a  resident  and  as  a  non-resi- 
dent for  the  remainder  of  the  time,  only  one  exemption,  however, 
being  granted  for  the  entire  year. 

Net  losses. —  The  new  federal  Revenue  Act  of  1921  permits  a 
taxpayer,  who  suffers  a  net  loss  from  "  the  operation  of  any  trade 
or  business  regularly  carried  on  by  the  taxpayer"*  in  one  tax- 
able year  to  offset  such  loss  against  the  net  income  of  the  next 
two  succeeding  taxable  years.  The  Committee  recommends  that 
this  net-loss  provision  be  recognized  in  arriving  at  the  net  income 
from  bu^siness  under  the  state  personal  income  tax. 

Appreciations  in  the  value  of  gifts. — ^A  prolific  source  of 
evasion  under  both  federal  and  state  income  tax  laws  has  been 
found  in  the  procedure  relating  to  gains  in  the  value  of  property 
disposed  of  by  gift.  The  rule  has  been  that  gifts  are  not  taxable 
to  the  recipient  and  are  not  deductible  by  the  donor.  In  cases 
where  property  has  grown  in  value  in  the  hands  of  the  donor 
antecedent  to  disposal  as  a  gift,  this  gain  has  not  been  subject 
to  tax.  Some  taxpayers  have  taken  advantage  of  this  situation 
to  avoid  the  tax.  For  example,  a  man  who  buys  a  block  of  securi- 
ties for  $500,000  and  holds  them  until  they  were  worth  $1,000,- 
000,  sometimes  does  not  sell  them  himself,  because  he  would 
then  have  to  account  for  the  profit  of  $500,000.  Instead  he  gives 
the  securities  to  his  wife  who  then  immediately  sells  them  but 
she  need  account  for  no  profit  because,  in  measuring  her  gain, 
she  measures  merely  from  the  value  of  the  securities  when  she 
received  them.  The  federal  Revenue  Act  of  1921  attempts  to 
meet  this  situation  by  compelling  the  wife  to  measure  her  gain 
from  the  date  when  her  husband,  not  she,  herself,  acquired  the 
securities.     This  involves  such  serious  administrative  difficulties. 


♦  Sec.  204  (a),     Cf.  infra,  p.  122. 


\ 


• 


77 


however,  that  the  Committee  is  disposed  to  favor  another  course. 
It  recommends  that  the  donor  be  compelled  to  account  for  the 
appreciation  in  the  value  of  the  property  given  away  at  the  time 
the  gift  is  made.  To  prevent  this  provision  from  operating  to 
discourage  gifts  to  charitable  institutions,  gifts  to  such  institu-^ 
tions  should  be  exempted  from  the  recommended  procedure. 

The  closed  transaction. —  One  of  the  problems  which  has  been 
most  troublesome  has  been  that  of  determining  the  precise  point 
of  time  at  which  a  taxpayer  shall  be  called  upon  to  account  for  a 
gain  or  loss  in  cases  where  exchanges  take  place  but  where  prop- 
erty other  than  cash  is  received  in  exchange.  The  language  of 
the  old  federal  law,  which  is  followed  in  the  state  law,  was  in- 
definite in  character.  The  federal  Revenue  Act  of  1921  (Sec. 
202)  goes  to  an  extreme  limit  in  postponing  such  accountings. 
The  state  Income  Tax  Bureau  favors  making  the  law  more  spe- 
cific than  it  has  been  in  the  past  but  opposes  following  the  fed- 
eral changes  in  full  on  the  grounds  (1)  that  such  generosity  is 
less  necessary  where  rates  are  as  low  as  those  in  this  State  and 
(2)  that  the  provisions  would  seriously  complicate  the  audit. 
The  Committee  believes  that  this  position  is  well  taken  and 
recommends  that  section  35J/-  of  the  personal  income  tax  law  be 
made  more  definite  by  the  insertion  of  the  phrase  "  when  the 
property  received  in  exchange  has  no  readily  realizable  market 
value."  It  is  necessary  also  to  make  a  small  change  in  section 
355  to  make  it  conform  to  the  new  rule  for  measuring  gains  and 
losses  adopted  by  the  Legislature  last  year. 

Miscellaneous  minor  amendments. —  In  addition  to  the  changes 
set  forth  above  the  committee  suggests  the  adoption  of  certain 
minor  changes  most  of  which  are  interpretative  in  character  or 
designed  to  correct  errors  in  drafting.  The  more  important  of 
these  are  enumerated  below: 

(1)  To  prevent  evasion  through  the  subtraction  of  items  which 
are  really  gifts,  deductions  for  bad  debts  should  be  limited  to 
debts  arising  in  the  regular  course  of  business  or  out  of  trans- 
actions entered  into  for  profit; 

(2)  To  prevent  evasion  through  a  too  liberal  interpretation  of 
the  term  "  expenses  for  entertainment,"  such  expenses  paid  by 
an  individual  should  be  disallowed  as  a  deduction; 


ll 


78 

(3)  To  prevent  an  injustice  to  the  beneficiaries,  income  accru- 
ing to  a  trust  but  destined  for  distribution  to  charitable  institu- 
tions and  other  similar  organizations  should  be  relieved  of  taxa- 
tion; 

(4)  To  prevent  resort  to  trusts  for  the  purpose  of  reducing  the 
rate  of  tax  properly  applicable  to  an  income,  section  365  (4) 
should  be  amended  by  prohibiting  the  deduction  of  payments  to 
beneficiaries  when  the  distribution  of  the  income  is  within  the 
discretion  of  the  fiduciary; 

(5)  To  facilitate  the  establishment  of  pension  funds,  a  section, 
similar  to  that  included  in  the  new  federal  law,  should  be  added 
exempting  trust-fund  accumulations  of  this  type ; 

(6)  To  avoid  the  necessity  for  elaborate  calculations  where 
only  negligible  sums  are  at  stake  and  to  correct  a  rule  which  has 
been  found  to  be  impracticable  in  operation,  distributions  of  the 
income-tax  proceeds  received  by  town  supervisors  should  be 
credited  to  general  town  purposes,  and 

(7)  To  bring  the  law  more  completely  into  accord  with 
accounting  practice,  reserves  for  bad  debts  should  be  recognized 
as  is  done  in  the  new  federal  law. 

The  Taxes  on  Financial  Institutions 

For  many  years  the  financial  institutions  of  the  State  have 
been  placed  in  a  special  class  for  purposes  of  taxation.  Xot  only 
has  their  tax  base  been  different  from  that  used  in  the  case  of 
other  business  but  the  rate  has  been  conventionalized  and  uni- 
form. The  Committee  attempted  to  detennine  what  have  been 
the  results  of  the  use  of  this  special  base  and  special  rate;  to 
ascertain  whether  the  banks  have  been  favored  or  discriminated 
against  by  the  tax  which  the  State  lays  upon  them.  More  spe- 
cifically, the  Committee  undertook  to  compare  the  burden  imposed 
en  business  corporations  generally  by  the  4i/o  per  cent  tax  on  net 
income  with  the  burden  imposed  on  financial  institutions  by  the 
special  taxes  on  banks,  based  largely  on  capital,  surplus^  and 
undivided  profits.  It  was  felt  that  the  first  step  toward  any 
change  in  tlie  rate  or  the  methods  of  taxing  these  institutions 
could  not  be  intelligently  taken  until  information  was  available 
showing  precisely  what  burden  the  present  taxes  involved.     In 


^ 


V-       I        f 


79 

addition  to  presenting  the  results  of  this  investigation,  this  sec- 
tion considers  the  situation  which  has  developed  as  the  result  of 
the  recent  decision  of  the  Supreme  Court  in  the  Richmond  case,* 
which  throws  doubt  upon  the  legality  of  the  present  methods  of 
taxing  banks  in  this  State. 

The  development  of  the  present  method  of  taxing  banks. — 
For  many  years  the  method  of  taxing  banks  in  New  York,  as  in 
other  states,  has  been  determined  by  the  narrow  limitations  placed 
by  Congress  in  1864  on  the  State  taxation  of  national  banks. 
The  limitation  is  stated  in  section  5219  of  the  Revised  Statutes 
of  the  United  States,  originally  passed  in  1864  and  amended  in 
1868,  which  now  reads  as  follows: 

**  Nothing  herein  shall  prevent  all  the  shares  in  any  association 
from  being  included  in  the  valuation  of  the  personal  property 
of  the  owner  or  holder  of  such  shares,  in  assessing  taxes  imposed 
by  authority  of  the  State  within  which  the  association  is  located ; 
but  the  legislature  of  each  State  may  determine  and  direct  the 
manner  and  place  of  taxing  all  the  shares  of  national  banking 
associations  located  within  the  State,  subject  only  to  the  two 
restrictions,  that  the  taxation  shall  not  be  at  a  greater  rate  than 
is  assessed  upon  other  moneyed  capital  in  the  hands  of  individual 
citizens  of  such  State,  and  that  the  shares  of  any  national  bank- 
ing association  owned  by  non-residents  of  any  State  shall  be 
taxed  in  the  city  or  town  where  the  bank  is  located,  and  not 
elsewhere.  Nothing  herein  shall  be  construed  to  exempt  the 
real  property  of  associations  from  either  State,  county  or  munici- 
pal taxes,  to  the  same  extent,  according  to  its  value  as  other  real 
property  is  taxed. 

In  this  State  no  important  changes  in  bank  taxation  have  been 
made  since  1901,  and  the  basis  of  the  system  now  in  force  was 
really  established  in  1865. 

Special  consideration  was  given  to  the  taxation  of  bank  stock 
as  early  as  1823,  when  a  law  was  passed  requiring  the  assessment 
of  bank  stock,  notes,  bonds  and  mortgages  —  which  had  not 
hitherto  been  subject  to  the  general-property  tax  —  at  cash  value 
as  taxable  property. f  The  tax  was  paid  by  the  banks  and 
deducted  by  them  from  the  dividends  of  stockholders. 

The  present  method  of  assessment  and  taxation  was  inaugurated 
in  1865,  when,  in  conformity  with  the  restrictions  laid  down  by 
Congress  for  State  taxation  of  national  banks,  the  provisions  were 

*  Merchants  National  Bank  r.  City  of  Richmond,  decided  June  6, 1921. 
fllam  of  1893,  ch.  262. 


80 

incorporated  into  the  New  York  tax  law*  that  the  stockholders  of 
state  and  national  banks  should  be  taxed  on  the  value  of  their 
shares,  at  the  place  where  the  bank  is  located,  and  not  at  a 
gi  eater  rate  than  is  assessed  on  other  moneyed  capital  in  the 
hands  of  individual  citizens  of  the  State.  Bank  real  estate  under 
this  law  was  taxed  locally  to  the  bank.  The  tax  on  shares  was 
placed  on  the  holders,  as  prescribed  by  the  federal  law,  but  the 
burden  of  supplying  the  assessors  with  the  necessary  information, 
and  of  insuring  the  collection  of  the  tax,  was  placed  on  the  banks. 
The  rate  of  the  tax  on  shares  was  the  same  as  that  on  all  property 
under  the  general-property  tax  which  prevailed  at  that  time. 
This  system  of  assessment  and  taxation  remained,  with  minor 
amendments,  until  1901. 

The  aim  of  the  tax  was  to  impose  an  equal  burden  on  bank  and 
other  capital,  and  at  the  same  time  to  remain  safely  within  the 
provisions  of  section  5219  which  permitted,  and  intended,  such 
equality.     The  only  purpose  of  Congress  in  making  such  pro- 
visions  was   to   prevent  undue   discrimination    against   national 
banks.     The  result  of  this  method  of  taxation,  however,  was  to 
impose  a  heavier  burden  on  bank  stock  than  on  other  personalty, 
since  the  special  provisions  for  assessment  made  it  possible  to 
reach  bank  stock  effectively  when  other  intangibles  were  escaping. 
Thus  in  1879,  before  there  had  been  any  important  modification 
of  the  general-property  tax  in  New  York,  bank  stock  comprised 
nearly  thirty  per  cent  of  the  assessed  value  of  all  personalty, 
tangible  and  intangible,  in  the  thirty-seven  counties  reporting"! 
To  cite  an  extreme  instance,  in  1878  the  banks  of  Albany  paid 
about  fifty-eight  per  cent  of  all  taxes  on  personal  property,  f    For 
many  years  no  changes  were  made  in  the  system,  however,  and 
the  fact  that  no  discrimination  against  banks  was  intended  made 
the  law  acceptable  in  the  eyes  of  the  courts. § 

In  1901  the  law  was  amended  to  make  the  tax  payable  directly 
by  the  state  and  national  banks,  although  still  assessed  on  the 
shares.**  The  rate  was  set,  arbitrarily,  at  one  per  cent.  At  the 
same  time  a  one  per  cent  tax  was  placed  on  the  capital,  surplus 
and  undivided  profits  of  trust  companies,  and  on  the  surplus  and 

*Law8  of  1865,  ch.  97, 

t  Annwa  Report  of  State  A  saesaors,  1879. 

tibtd.,  1878,  p.  16. 

•♦  rSL^i"^!  24.*'''°*^  ^^"^  °'  ^^"^  ^"^^  "■  ^*y«^'  «*«••  121  U.  S.  13. 


•  • 


f 


• 


81 

undivided  profits  of  savings  banks.*     Thus  the  tax  on  state  and 
national  banks  remains,  technica]ly,  a  tax  on  the  shareholders,  but 
it  is  collected  from  the  banks,  and  it  is  now  generally  regarded 
even  by  the  'bankers  themselves  as  a  tax  on  the  bank.     The  Legis- 
lature of  this  State  gave  tangible  evidence  that  it  considered  the 
tax  to  be  in  fact  a  business  tax  on  the  bank  when  it  made  dividends 
on  the  shares  taxaWe  under  the  ix^rsonal  income  tax,  i)assed  in 
1919.     Congress  took  the  same  attitude  when,  in  the  Kevonue 
Act  of  1921,  it  permitted  the  deduction  of  the  tax  as  a  business 
expense  in  arriving  at  the  taxable  net  income  of  banks.     The 
taxes  on  other  financial  corporations,  which  are  placed  on  the 
corporations  as  such,  are  similar  to  the  tax  on  bank  stock,  and 
the  provisions  which  have  been  made  from  time  to  time  for  tlio 
taxation  of  mortgages,  secured  debts  and  other  intangibles,  bear 
no  direct  relation  to  the  bank-stock  tax.     No  other  important 
changes  have  been  made  in  bank  taxation,  and,  in  the  absence  of 
amendments   to  section   5219   of  the  federal   Revised   Statutes, 
change  is  all  but  impossible. 

While  the  method  of  taxing  banks  has  remained  almost  static, 
the  general  property  tax,  which  prevailed  when  this  system  of 
bank  taxation  was  introduced  and  to  which  tlie  bank  taxes  were 
adjusted,  has  disappeared.     Only  real  estate  and  some  tangible 
personalty  remain  under  the  property  tax,   and  all   intangibles 
and  most  of  the  tangible  personalty  of  corporations  are  reached 
by  other  taxes.    A  system  of  business  taxes  has  grown  up.  PubUc- 
utility  corporations  and  real-estate  and  holding  companies  have 
been  taxed  since  1880  on  capital  stock  or  gross  earnings,  or  both 
at  varying  rates.f     The  minimum  rate  on  capital  stock  is  one 
and  one-half  per  cent,  unless  the  company  is  not  a  profitable  one, 
when,  under  certain  conditions,  the  tax  is  only  three-fourths  of 
one  per  cent.    In  addition  to  this,  those  transportation  and  trans- 
mission companies  subject  to  this  tax  pay  an  annual  fax  of  one- 
half  of  one  per  cent  on  gross  earnings.     Those  transportation 
companies  not  subject  to  the  capital  stock  tax  pay  higher  rates 
on  gross  earnings,  varying  with  the  amount  of  the  dividends  and 
the  nature  of  the  company.     Manufacturing  and  mercantile  com- 
pam^r  "business"  corporations,  have  been  taxed  since  1917 

*  Tax  Law,  a  188,189. 
^Ibid.,  ii  182-186. 


82 

on  net  income,  the  present  rate  being  four  and  one-half  per  cent  * 
The  taxes  on  miscellaneous  financial  corporations  are  on  capital 
stock  and  those  on  insurance  companies  on  premiums.  These 
taxes  are  comparable  to  those  on  banks.f  In  addition  to  these 
franchise  taxes,  corporations,  with  the  exception  of  banks,  are 
subject  to  an  organization  tax  of  one-half  of  one  per  cent  on  capital 
stock4  Private  individuals  have  been  taxed  since  1919  on  net 
income  instead  of  on  intangible  personal  property.  §  The  net 
result  of  these  readjustments  has  been  to  change  entirely  the 
basis  of  taxation  on  corporations  and  on  the  owners  of  intangibles, 
while  the  taxes  on  banks  have  remained  the  same. 

Results  of  the  statistical  investigation.- The  Committee  at 
the  beginning  of  its  inquiry  early  in  the  spring  of  1921,  decided 
to  attempt  to  ascertain  whether  the  special  taxes  on  banks  (and 
bank  stock)  imposed  a  just  and  equitable  burden  upon  the  banks 
both  as  compared  with  the  burdens  carried  by  other  classes  of 
business  and  as  it  affected  particular  institutions  within  the 
various  classes  of  banks.  Apparently  no  one  had  previously 
attempted  to  determine  accurately  whether  the  one  per  cent  rate 
on  the  rather  artificial  basis  of  value  specified  in  the  law  was 
adequate  or  inadequate  or  whether  the  system  was  operating  in  a 
discriminatory  manner  as  between  individual  banks. 

The  cooperation  of  the  Bureau  of  Internal  Eevenue  of  the 
Lnited  States  Treasury  was  enlisted  and  valuable  data  were 
secured  bearing  upon  the  income  of  various  classes  of  business 
concerns  The  reports  of  the  State  Banking  Department  and  the 
Comptroller  of  the  Currency  were  utilized  and,  finally,  appeals 
were  made  by  questionnaires  directly  to  the  banks  when  informa- 
tion was  available  in  no  other  way.  The  response  from  the 
corporations  was  very  complete.  The  data  have  been  fullv 
analyzed  and  the  results  are  presented  in  full  in  Part  II  of  this 
report.**  It  is  believed  that  these  detailed  statistical  studies  pro- 
vide a  basis  for  drawing  conclusions  regarding  the  true  burden 

dr^ndable'"'*'*"*'*''''   '^""^'^  ''^'''^   '"  "'"^"^   ^^^"""^^  ^"^"^ 

*  Tax  Law,  art.  9a. 
flbid.,  §§  187-189. 
tlhid.,  §  180. 
ilbid.,  art.  16. 
**  C/.  infra,  p.  J83  e<  seq. 


"> 


,     ^  • 


0  t 


83 

Since  the  basis  of  the  computations  is  set  forth  fully  in  Part  II, 
it  will  be  unnecessai-y  to  make  any  elaborate  statement  of  the 
details  here.    The  general  results  only  will  be  summarized. 

The  aggregate  amount  collected  from  the  financial  institutions 
in  business  taxes  (taxes  on  bank  stock  or  «  franchise  "  taxes)  in 
1920  was  $11,667,958,  distributed  as  follows: 

National  banks $5,792,208 

State  banks 1,239,268 

Trust  companies 3,196,586 

Savings  banks 1,439,896 

^*'**^  $11,667,958 

These  figures  do  not  take  into  account  real-estate  taxes  which  as 
explained  above,*  must  be  placed  in  a  separate  category  for  com- 
parative purposes,  and  not  be  c'assed  as  true  business  taxes  or 
considered  to  be  of  the  same  degree  of  burdensomeness  as  such 
taxes.  In  making  comparisons  of  burden,  the  taxes  were  reduced 
to  a  percentage  of  net  income. 

Natiokal  Banks.—  In  the  case  of  national  banks  the  'business 
tax  (1  per  cent  on  the  shares,  valued  on  the  basis  of  capital  sur- 
plus and  undivided  profits)  is  heavier  than  the  business  tax  on 
the  income  of  manufacturing  and  mercantile  companies.  In  the 
aggregate  the  national  bank  tax  is  equivalent  to  6  4/5  per  cent 
of  their  net  income,  on  a  thre^year  basis,  while  the  tax  on  mer- 
cantile and  manufacturing  companies  is  only  41/0  per  cent.  The 
tigures  by  years  are  as  follows : 

1918 ^ 

1919 : !-„p^'*^^'' 

1920 6.3  percent 

0.7  per  cent 

Only  17  of  the  398  national  banks  reporting  paid  taxes  as  low 
as  those  paid  by  the  general  business  corporations.  The  taxes 
of  five  banks  exceeded  40  per  cent  of  their  net  income,  while  ihe 
tax  of  one  bank  was  less  than  2  per  cent.  An  examination  of 
Table  3  on  page  185  will  show  that  as  a  rule  the  large  banks  pay 
lower  taxes,  measured  by  net  income,  than  the  banks  of  medium 
a^d^nmn_size.    Thus  banks  of  the  largest  size  (10  million-doUar 

•  Supra,  p.  62  cl «,.    For  the  figure,  reganiia,  property  ta«..  cf.  infra,  p.  194. 


I 


!'»»^ 


84 


banks  or  more)  pay  6  3/5  per  cent  while  moderate-sized  banks 
(204  with  capital,  surplus  and  undivided  profits  between  $100,000 
and  $1,000,000)   pay  11  1/5  per  cent. 

State  Banks. —  Judged  by  their  relation  to  net  income,  the 
taxes  on  state  banks  ('basis  the  same  as  national  banks)  are  slightly 
lower  than  those  on  national  banks  but  still  much  higher  than  the 
taxes  on  business  corporations  generally.  State  banks  on  the 
three-year  basis  pay  (3  58/100  per  cent  of  their  net  income  as 
compared  with  the  4l/>  per  cent  of  the  business  corporations.  The 
figures  by  years  are  as  follows: 

1918   .- 8.2  per  cent 

1919   5.9  per  cent 

1920 6.2  per  cent 

Only  7  out  of  156  State  banks  reporting  paid  taxes  as  low  as 
those  paid  by  business  coi^porations  generally  (4:l/>  per  cent). 
Two  state  banks  paid  less  than  2  per  cent  while  one  paid  more 
than  40  per  cent.  The  largest  banks  averaged  7  per  cent  and 
the  smallest  banks  8  56/100  per  cent,  so  that,  in  this  case  also, 
the  tax  strikes  hardest  on  the  smaller  institutions. 

Trust  Companies. —  The  trust  companies  (taxed  directly  at 
1  per  cent  of  capital,  surplus  and  undivided  profits)  pay  heavier 
taxes  than  either  state  or  national  banks  and,  of  course,  much 
heavier  taxes  than  the  mercantile  and  manufacturing  companies. 
Their  taxes,  on  the  three-year  basis,  amounted  to  7  1/3  per  cent 
of  their  net  income.     The  following  are  the  figures  by  years: 

1918    8.4  per  cent 

1919    7.6  per  cent 

1920    6. 5  per  cent 

Only  11  out  of  the  81  trust  companies  reporting  paid  taxes  as 
low  as  those  of  business  corporations  generally.  Three  trust  com- 
panies paid  less  than  2  per  cent  and  one  more  than  40  per  cent. 
The  same  discrimination  against  the  small  institutions,  noted  in 
the  cases  of  the  state  and  national  banks,  is  present  also  in  the 
case  of  trust  companies.  The  very  large  institutions  paid  7% 
per  cent  on  the  average  while  the  smallest  institutions  paid  9  3/5 
per  cent. 

Investment  Companies. —  The  class  of  investment  companies 


85 


contains  a  heterogeneous  group  of  business  concerns.  It  includes 
the  "  Morris  Plan  "  banks  as  well  as  several  types  of  commercial- 
paper  houses.  Its  content  is  not  at  all  what  would  be  inferred 
from  the  title  of  "  investment  companies." 

The  taxes  applying  to  these  companies  consist  of  II/2  mills  for 
each  dollar,  face  value,  of  capital  plus  1  per  cent  of  surplus 
and  undivided  profits.  The  1%  mills  on  capital,  specially  val- 
ued, in  place  of  1  per  cent  as  in  the  case  of  state  and  national 
banks  and  trust  companies,  is  a  considerable  concession  as  is 
shown  by  the  fact  that  the  "  investment  companies  "  paid  in 
taxes  only  3  13/100  per  cent  of  their  net  income  on  the  basis 
of  the  three-year  period  and  the  following  percentages  on  the 
annual  basis : 

19 18 5       per  cent 

1919 3       per  cent 

1920 2.7  per  cent 

Eleven  of  the  15  companies  reporting  paid  smaller  taxes  than 
meicantile  and  manufacturing  companies.  Two  paid  less  than 
2  per  cent  and  1  paid  more  than  8  per  cent. 

Savings  Banks. —  In  the  case  of  savings  banks  the  item  of  net 
income,  used  as  a  basis  of  comparison,  is  not  a  highly  satisfac^ 
tory  one  and  the  results  are  consequently  presented  vrith  diffi- 
dence and  reservations.  The  difficulty  arises  in  connection  with 
the  treatment  of  the  so-called  "  dividends  "  which  are  the  dis- 
tributions to  depositors  in  these  mutual  institutions.  The  ques- 
tion is  as  to  whether  they  should  be  deducted  as  expenses  or 
included  as  profits.  As  a  matter  of  fact,  the  character  of  this 
item  is  undoubtedly  mixed,  containing  elements  of  profit  as  well 
as  interest.  E-ven  when  deducted  as  interest,  the  figures  show 
that  savings  banks  pay  lighter  taxes  than  national  and  state  banks 
and  trust  companies,  but  still  somewhat  heavier  taxes  than  busi« 
ness  corporations.  The  three-year  figure  for  the  savings-bank 
tax  (1  per  cent  of  the  par  value  of  surplus  and  undivided  earn- 
ings) is  5  4/5  per  cent  of  the  net  income  as  above  defined  and 
the  annual  figures  run  as  follows: 

1918 8 . 1  per  cent 

1919 7.0  per  cent 

1920 3 . 3  per  cent 


!'         I 


86 

The  low  figure  for  1920  is  the  result  of  the  shrinkage  in  the 
value  of  securities  in  that  period.  In  case  dividends  (in  whole 
or  in  part)  are  not  deducted  in  computing  net  income,  the  percent- 
ages given  ahove  would  drop,  of  course,  to  a  still  lower  level. 

The  liberal  treatment  of  savings  banks,  reflected  by  these  fl<r- 
ures  (liberal  as  compared  with  that  given  other  banks)  is  not 
entirely  unintended.  There  is,  in  fact,  substantial  support  for 
the  position  that  these  institutions  are,  in  a  considerable  measure, 
eleemosynary  in  character  and  deserving  of  special  leniency  in 
taxation.  They  are  entirely  exempt  under  the  federal  income 
tax. 

The  crisis  caused  by  the  Richmond  decision.— The  facts 
revealed  by  the  statistical  inquiry  regarding  the  weight  of  the 
burden  on  banks  lead  to  the  conclusion  that  either  the  taxes  on 
banks  should  be  lowered  or  the  taxes  on  mercantile  or  manufac- 
turing companies  should  be  raised.  The  Committee  does  not 
share  the  view  advanced  by  some  that  there  should  be  a  dis- 
crimination in  the  burden  of  the  business  taxes  upon  particular 
classes  of  business.  It  believes  that  the  dollar  earned  in  bank- 
ing should  contribute  approximately  the  same  amount  to  the  sup- 
port of  government  as  the  dollar  earned  in  manufacturing  or 
trading. 

The  gross  inequality  of  the  present  taxes  on  banks,  both  as 
between  different  classes  of  institutions  and  as  between  different 
individual  concerns  within  each  class,  demands  a  change  in  the 
character  of  the  taxes.  A  tax  which  discriminates  in  favor  of 
the  large  bank  and  against  the  small  one  is  indefensible.  How- 
ever, a  change  in  the  form  of  the  bank  taxes  has  always  been 
considered  out  of  the  question  because  the  present  form  is  the 
only  one  apparently  in  harmony  with  the  provisions  of  section 
5219  of  the  Federal  Revised  Statutes. 

With  dramatic  suddenness  the  situation  was  entirely  changed, 
however,  while  the  Committee's  statistical  study  was  still  in""  its 
early  stages.  On  June  6,  1921,  a  change  in  the  form  of  the 
bank  taxes  became  an  immediate  possibility  through  the  effect 
of  a  decision  of  the  Supreme  Court  of  the  United  States  in  the 
case  of  The  Merchant's  National  Bank  of  Richmond  vs.  The. 
City  of  Richmond,  This  decision  turns  on  the  interpreta- 
tion  of  the  phrase  "other  moneyed  capital."     Previously  this 


87 

phrase  had  been  thought  to  mean  merely  banking  capital  and 
the  requirements  of  section  5219  were  considered  to  be  satisfied 
when  state  banks  were  taxed  in  the  same  manner  and  at  the 
same  rate  as  national  banks.  The  Supreme  Court,  however, 
made  it  clear  in  this  decision  that  the  comparison  must  be 
broader  and  held  that,  when  the  taxes  in  Richmond,  Virginia, 
were  lighter  upon  intangible  property  representing  money  loaned, 
such  as  mortgages  and  bonds,  than  the  taxes  on  bank  stock,  the 
federal  statutes  had  been  violated.  This  decision  casts  serious 
doubt  upon  the  validity  of  the  New  York  tax  on  the  shares  of 
stock  of  national  banks  because,  as  has  been  explained,*  intan- 
gibles in  this  state,  far  from  being  taxed  at  1  i>er  cent,  are  en- 
tirely exempt.  True,  the  income  from  them  is  taxed  under  tlu-^ 
personal  income  tax  but  so,  also,  are  the  dividends  on  the  bank 
stock.  The  explanation  is,  as  indicated  above,f  that,  while  its 
form  has  remained  unchanged,  the  national  bank  tax  has  devel- 
oped, in  the  course  of  the  evolution  of  taxation  in  this  State,  into 
a  true  business  tax.  It  is  no  longer  in  fact  a  personal  tax.  The 
valid  comparison,  from  the  economic  point  of  view,  is  no  longer 
a  comparison  between  the  tax  on  national  bank  shares  and  the 
tax  on  intangible  property  but  rather  a  comparison  between  the 
tax  on  national  banks  (through  their  shares)  and  the  taxes  on 
other  similar  business. 

The  national  banks  of  the  State  have  been  quick  in  their 
attempt  to  take  advantage  of  the  situation.  A  large  number  of 
the  banks  at  once  instituted  proceedings  in  the  courts  to  test 
the  legality  of  the  taxes  levied  on  their  shares  in  this  State.  A 
test  case,  that  of  the  Hanover  National  Bank  vs.  Goldfogle,  has 
already  been  passed  upon  by  the  Supreme  Court  of  the  State:j: 
and  the  present  tax  upheld.  But  the  case  is  to  be  carried  to  the 
Supreme  Court  of  the  United  States  where  the  issue,  in  the 
opinion  of  the  advisers  of  the  Committee,  is  highly  uncei-tain. 

It  is  the  belief  of  the  Committee  that  the  real  solution  of 
the  difficulty  lies  not  so  much  in  the  establishment  of  a  satisfac- 
tory interpretation  of  the  phrase  "  other  moneyed  capital  ''  as 
in  the  change  of  the  limiting  section  in  the  Revised  Statutes  so 
as  to  permit  the  tax  to  stand  forth  in  its  true  character  as  a 
business  tax.     Accordingly,  it  has  taken  active  steps  to  secure 

♦  Cf.  supra,  p.  63. 
t  Cf.  aupra,  p.  81. 
j  Special  Term,  February  10,  1922. 


88 

an  amendment  to  section  5219  which  will  permit  the  State  to 
continue  to  levy  a  fair  business  tax  on  national  banks. 

The  situation  is  indeed  a  serious  one,  for  if  the  State  may 
not  tax  the  business  of  a  national  bank,  it  cannot  in  fairness  tax 
the  business  of  a  state  bank  or  a  trust  company  which  must  enter 
into  active  daily  competition  with  the  national  bank.  Thus,  not 
only  does  the  issue  involve  approximately  ten  millions  of  revenue 
annually  but  it  threatens  the  whole  plan  of  tax  reform  in  this 
State  which  has  been  gradually  worked  out  as  the  result  of  much 
painful  experience.  If  the  only  way  to  reach  national  banks 
is  to  return  to  the  old  discredited  tax  on  intangible  personal 
property,  either  national  banks  must  go  free  or  the  State  must 
abandon  the  fruits  gained  in  fifty  years  of  arduous  effort  toward 
tax  reform. 

The  interests  of  many  other  states  are,  of  course,  affected  by 
the  decision  in  the  Richmond  case  and  an  organization  of  state 
representatives  has  been  effected  to  urge  upon  Congress  the  de- 
sirability of  granting  powers  to  the  states  which  will  enable  them 
to  tax  national  banks  in  a  manner  which  is  in  harmony  with  the 
character  of  the  modem  state  tax  systems.  The  following  pro- 
posed amendment  to  section  5219  has  been  advanced  by  the  states 
interested  and,  in  the  belief  that  it  grants  adequate  powers  to 
this  State  while  giving  every  reasonable  safeguard  to  the  national 
banksj  it  is  being  actively  supported  by  the  Committee: 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of 
the  United  States  of  America  in  Congress  assembled,  That  sec- 
tion 5219  of  the  Revised  Statutes  of  the  United  States  be,  and 
the  same  is  hereby,  amended  so  as  to  read  as  follows: 

*'  Sec.  5219.  That  the  legislature  of  each  State  may  provide 
for  the  taxation  of  the  real  property  therein  of  any  national  bank- 
ing association  located  therein  in  the  same  manner  and  at  the 
same  rate  as  other  real  property  in  the  same  taxing  district  is 
taxed  for  public  purposes;  and  may  also  provide  for  the  taxa- 
tion of  either  the  income  of  such  association,  or  the  shares  of  such 
association,  subject  to  the  restrictions  that  whichever  of  the  above 
classes  shall  be  chosen  the  rate  or  rates  of  tax  imposed  should  be 
not  greater  than  the  lowest  uniform  rate  or  graduated  rates 
imposed  in  respect  of  such  class  on  banks,  banking  associations, 
or  trust  companies  doing  a  banking  business,  incorporated  by  or 
under  the  laws  of  such  State,  other  than  savings  banks  or  similar 
nonstock  corporations  organized  for  the  mutual  benefit  of  deposi- 
tors; and  if  the  shares  of  such  association  are  taxed,  the  shares 
owned  by  nonresidents  of  such  State  shall  be  taxed  in  the  taxing 


89 


district  where  such  association  is  located  and  not  elsewhere;  and 
may  also,  if  the  State  provides  for  the  taxation  of  individual 
incomes,  include  as  a  part  of  taxable  income  the  income  from  the 
shares  of  national  banking  associations:  Provided,  That  the 
income  from  the  shares  of  banks,  banking  associations,  and  trust 
companies  doing  a  banking  business,  incorporated  by  or  under 
the  laws  of  such  State,  is  also  so  included. 

**Any  tax  upon  shares  of  national  banks  heretofore  paid,  levied, 
or  assessed,  which  is  in  accord  with  the  provisions  hereof,  is 
hereby  legalized,  ratified,  and  confirmed  as  of  the  date  when 
imposed.  Nothing  herein  shall  be  construed  to  exempt  the  real 
property  of  associations  from  either  State,  county,  or  municipal 
taxes,  to  the  same  extent,  according  to  its  value,  as  other  real  prop- 
erty is  taxed." 

Conclusions. —  The  Committee  has  found  that  the  old  method 
of  taxing  banks  and  financial  institutions,  which  has  been  in 
force  for  many  years,  produces  very  unequal  results.  It  recom- 
mends: (1)  That,  in  case  the  necessary  amendment  to  section 
5219  of  the  Revised  Statutes  is  granted  hy  Congress,  natiomd 
hanks,  state  hanks,  trust  companies,  and  Morris  Plan  hanks  he 
subjected  to  a  hwsiness  tax  on  their  net  income  levied  at  the  game 
rate  as  that  applied  to  the  net  income  of  mercantile  and  manu- 
facturing companies: 

(2)  Tliat,  because  of  the  difficulty  of  defining  the  net  income 
of  savings  hanks,  it  is  recommended  that  the  ta^  on  such  institu- 
tions he  continued  in  the  form  of  a  franchise  tax  based  on  gome 
such  measure  as  that  provided  in  the  present  law: 

(3)  That  the  class  of  investment  companies  be  abandoned  as 
a  separate  category  for  tax  purposes,  Morris  Plan  Bankg  being 
taxed  as  suggested  in  {!)  above  and  all  other  organizations  now 
included  in  this  class  being  subjeoted  to  the  regidar  franchise  tax 
on  the  income  of  business  corporation^  {Section  90), 

The  adoption  of  these  recommendations  will  result  in  more 
exact  fairness  in  the  treatment  of  financial  institutions  as  com- 
pared with  other  businesses  and  will  correct  the  discrimination 
against  the  smaller  banks  of  certain  classes  which  the  statistical 
study  has  revealed. 

The  adoption  of  the  Committee's  recommendation  for  an  income 
tax  upon  banks  and  financial  institutions  pre-supposes  that  a  por- 
tion of  the  yield  from  the  taxes  will  be  returned  to  the  localities  at 


90 

least  equal  to  the  amount  which  they  now  derive  from  the  tax 
upon  shares  of  stock  in  state  and  national  banks.* 

To  avoid  excessive  fluctuations  in  revenues  it  is  suggested  that 
the  principle  of  averages  may  well  be  utilized ;  that  is,  instead  of 
basing  the  assessment  upon  the  net  income  of  a  single  year,  the 
average  of  the  net  incomes  of  three  or  five  years  preceding  be 
used.  This  method  could  be  adopted  gradually  by  starting  with 
this  year's  income  and  incorporating  the  income  of  succeeding 
years  as  a  part  of  the  base  as  time  proceeds.  The  adoption  of 
this  plan  in  this  period  of  depression  and  of  small  profits  would 
work  no  hardship  and  should  arouse  little  antagonism. 

However,  the  adoption  of  the  recommendations  outlined  above 
must  await  Congressional  action  upon  the  proposed  amendment 
to  section  5219  of  the  Kevised  Statutes.f  //  ct  reasorwhle  amend- 
ment is  blocked  through  the  short-sighted  opposition  of  a  small 
section  of  the  financial  community,  the  CommiUee  proposes  a  plan 
to  prevent  the  evasion  by  the  national  banks  of  their  fair  share 
of  the  governmental  burden,  through  a  return  to  ihe  taxation  of 
gwch  moneyed  capital  as  competes  with  natioTud  hanks,  at  the 
same  rate  as  that  imposed  upon  national  hank  shares.  The 
Committee  regards  this  as  a  very  undesirable  alternative  but  a 
necessary  one  in  the  contingency  described. 

The  Taxes  on  Insurance  Companies 

The  Committee  has  encountered  serious  difficulties  in  its  attempt 
to  measure  the  burden  of  the  taxes  at  present  imposed  on  insur- 
ance companies.     Such  companies  pay  a  business  tax  of  one  per 
cent  on  gross  premiums,  in  excess  of  certain  specified  deductions, 
on  the  business  done  within  the  SH;ate  during  the  previous  year. 
In  addition  to  the  difficulties  involved  by   reason   of  the  fact 
that  many  of  the  companies  are  organized  on  the  mutual  basis,:}: 
there  are  serious  differences  of  opinion  in  many  lines  of  insurance 
regarding  the  size  of  reserves  which  may  Ibe  reasonably  built  up. 
However,  it  was  possible  to  secure  fairly  satisfactory  data  for 
fire  and  marine  companies  organized  as  stock  companies  and  the 

*  Cf.  supra,  p.  83. 
t  Cf.  supra,  p.  88. 
X  Cf.  supra,  p.  85. 


91 

results  of  the  analysis  are  set  forth  in  detail  in  Part  II.*  It 
appears  that  over  a  ten-year  period,  1911-1920,  91  such  com- 
panies paid  in  business  taxes  5%  per  cent  of  their  net  income. 
If  insurance  companies  operating  at  a  loss  are  excluded,  the  5% 
per  cent  rate  drops  to  4  84/100  per  cent.  This  is  the  figure 
most  properly  comparable  with  the  4^/2  per  cent  paid  by  mercan- 
tile and  manufacturing  companies.  It  is  clear  that  so  far  as 
aggregate  business  taxes  paid  are  concerned  the  insurance  com- 
panies of  these  types  are  on  a  fairly  equal  basis  as  compared  with 
business  corporations  generally. 

A  very  unsatisfactory  situation  is  revealed,  however,  when  a 
study  is  made  of  the  taxes  paid  by  the  different  companies  within 
the  class,  f  Three  companies  pay  less  than  one  per  cent  of  their 
net  income  in  business  taxes  while  four  companies  pay  more  than 
25  per  cent. 

The  Committee  believes  that  no  good  reason  exists  why  it 
should  not  be  possible  to  apply  a  uniform  business  income  tax  to 
all  insurance  companies  of  the  non-mutual  type  and  suggests  that 
a  plan  for  accomplishing  this  be  worked  out  in  detail  in  conference 
with  the  interests  affected.  This  is  a  task  which,  because  of  the 
pressure  of  other  commitments,  the  Committee  has  thus  far  found 
it  impossible  to  undertake.  The  question  of  proper  reserves  can 
be  controlled,  arbitrarily  if  necessary,  in  cases  where  actual  loss- 
experience  under  the  various  new  types  of  insurance  forms  an 
insufficient  basis  for  accurate  estimates. 

The  taxation  of  mutual  companies  on  the  basis  of  net  income 
is  a  very  difficult  task  indeed.  When  the  customers  and  the 
owners  are  identical  groups,  conditions  are  absent  which,  under 
ordinary  competitive  conditions,  cause  the  true  differential  profit 
of  the  organization  to  emerge.  The  profit  is  usually  veiled  by  a 
difference  in  the  level  of  rates.  Consequently,  unless  mutual 
business  is  to  be  relieved  entirely  of  business  taxation,  some  arbi- 
trary basis  is  necessary  for  the  tax.  The  Committee  recommends 
no  change  in  the  method  of  taxing  mutual  companies  at  this  time, 
but  considers  this  a  field  which  deserves  further  studv  and  investi- 
gation. 

*  Infra,  p.  264  et  seq. 
^Cf.  infra,  p.  266. 


92 


The  Taxes  on  Public  Utilities 

The  Committee  has  concentrated  much  of  its  effort  upon  the 
problem  of  the  taxation  of  public  utilities  in  this  State.  The 
present  taxes  on  public  utilities  are  a  complicated  hodge-podge 
which  are  the  despair  of  the  taxpayer  and  an  occasion  for  amaze- 
ment and  scorn  of  students  of  taxation  generally.  For  a  long  time 
it  has  been  generally  appreciated  that  the  taxes  on  public  utilities 
were  arbitrary,  uncertain  and  compHcated,  but  it  has  been  assumed 
that,  nevertheless,  the  law  did  achieve  a  reasonable  degree  of 
equity  in  the  distribution  of  the  tax  burden.  Our  statistical  in- 
vestigation shows  conclusively  that  the  net  result  of  all  the  effort 
which  we  now  put  forth  in  assessing  these  intricate  taxes  is 
scandalous  inequality  and  disgraceful  discrimination. 

History  of  public-utility  taxes  in  the  State.—  In  order  to 
throw  light  upon  the  present  methods  of  taxation  and  to  assist 
in  their  improvement,  the  following  brief  account  of  the  historical 
development  of  New  York's  taxes  upon  public-utility  corporations 
is  presented. 

Beginning  with  the  year  1823,  the  taxation  of  the  public- 
utility  corporations  has  been  the  subject  of  frequent  legislation. 
For  more  than  a  half-century  such  legislation  was  principally 
concerned  with  the  increasingly  difficult  problem  of  taxing  the 
corporations  under  the  general-property  tax.  The  first  important 
departure  was  made  in  1880,  with  the  enactment  of  the  corporate 
franchise  tax  law.*  This  was  a  tax  on  the  value  of  capital  stock 
at  a  rate  varying  with  the  dividends  of  the  corporation.  If  the 
corporation  paid  less  than  six  per  cent  on  capital  stock  the  rate 
was  one  and  one-half  mills  per  dollar  of  capital  stock;  if  more 
than  six  per  cent  the  rate  was  one-quarter  of  a  mill  for  every 
one  per  cent  of  dividends  on  each  dollar  of  capital  stock.  This 
tax  applied  to  all  public-utility  corporations,  domestic  and  foreign, 
without  exception,  and  was  in  lieu  of  the  state  tax  on  personalty. 
It  was  placed  under  the  administration  of  the  state  comptroller 
whose  powers  were  enlarged  accordingly. 

In  addition  to  this  in  the  same  year  a  tax  of  one-half  of  one 

*  Statutes  1880    chap.  542.     This  was  not  called  a  tax  on  the  corporate  /ranchi^  until  1881 
{SM^TlSSl!^hap&l):y^hen  the  name  was  introduced  to  avoid  constitutional  difficult.os. 


93 

per  cent  on  gross  earnings  was  imposed  on  all  transportation  com- 
panies and  telephone  and  telegraph  companies.* 

In  1881  the  law  was  declared  to  be  a  franchise  tax  to  meet 
constitutional  objections.  In  1885  the  franchise  tax  was  for  the 
first  time  limited  to  that  capital  employed  within  the  State  to 
meet  an  obvious  injustice.f  During  the  same  decade  came  the 
Supreme  Court  decision  that  the  State  could  not  tax  interstate 
commerce,  and  the  law  was  amended  in  1894:^  to  exclude  inter- 
state earnings.  The  tax  was  henceforth  confined  to  intra  state 
business  in  spite  of  a  later  decision  (1891)  that  the  State  might 
tax  that  proportion  of  interstate  business  carried  on  within  the 
state.    Taxes  collected  on  interstate  business  previous  to  this  were 

refunded. 

In  1886,  in  recognition  of  the  fact  that  the  State  was  granting 
a  special  and  valuable  privilege,  an  organization  tax  of  one-eighth 
of  one  per  cent  was  imposed  on  the  capital  stock  of  corporations 
at  the  time  of  incorporation.  This  was  extended  to  foreign  cor- 
porations in  1895  as  a  license  tax  of  one-eighth  of  one  per  cent 
on  the  amount  of  capital  employed  within  the  State  in  the  year 
when  the  foreign  corporation  first  transacts  business  in  the  State. 
The  organization  tax  on  domestic  corporations  was  reduced  in 
1901  to  one-twentieth  of  one  per  cent  owing  to  the  competition  of 
New  Jersey  where  the  tax  amounted  only  to  one-fiftieth  of  one 

per  cent. 

The  revenue  from  the  corporation  taxes  decreased  as  a  result 
of  the  narrowing  interpretation  of  the  courts.  Further,  evasion 
increased  under  the  capital-stock  tax  as  time  went  on.  The  sur- 
plus of  foreign  corporations  was  not  taxable  according  to  the  court 
interpretation,  and  foreign  corporations  frequently  claimed  that 
they  were  employing  their  surplus  and  not  their  capital  in  New 
York  business.  Domestic  corporations  as  well  as  foreign  evaded 
the  tax  by  issuing  bonds  rather  than  stock,  for  bonded  indebted- 
ness was  deductible  from  the  value  of  capital  stock.  The  tax  was 
also  reduced  to  some  extent  by  turning  profits  into  surplus  rather 
than  dividends. 


♦  Statutes,  chap.  542,  as  amended  1881,  chan.  361.  Under  the  law  of  1880  street  railways  were 
exempted  from  the  operation  of  the  gross  earnings  tax,  and  express,  palace  car  or  sleeping  car  com- 
panies or  freight  lines  were  permitted  to  deduct  payment  to  any  common  carrier  for  transporta- 
tion upon  Buch  lines.  These  exemptions  were  dropped  by  the  amendment  of  1881  following  the 
recommendation  of  the  comptroller  who  found  them  to  be  without  justification  {Comptroller'* 
Reports,  1881,  1882). 

t  StafufM,  1885,  chap.  ROl.  ,  .  ,„  ,,.  .^  ,«, 

tlbid.,  1894,  chap.  562,  in  response  to  the  decisions  in  the  case  of  Fargo  r.  Michigan,  121 
U,  S.  230,  1887  and  others. 


94 


To  meet  these  difficulties  in  part  changes  were  made  in  the 
method  of  taxing  public  utilities  in  1896.  Elevated  and  surface 
railways,  other  than  steam,  were  withdrawn  from  the  capital- 
stock  tax  and  su'bjected  instead  to  a  tax  of  one  per  cent  on  gross 
earnings,  plus  a  tax  of  three  per  cent  on  all  dividends  in  excess 
of  four  per  cent.*  Light,  water,  gas,  heating  and  power  com- 
panies were  also  withdrawn  and  taxed  in  the  same  manner  as 
street  railways,  excepting  that  the  rate  on  gross  earnings  was 
made  one-half  of  one  per  cent.f  These  last-named  companies 
had  not  been  sulbject  to  the  gross-earnings  tax  placed  on  trans- 
portation companies,  and  had  largely  escaped  the  capital-stock 
tax  by  means  of  large  bond  issues.  There  is  no  apparent  reason 
for  the  rate  on  gross  earnings  being  less  than  that  on  the  gross 
earnings  of  street  railways.  In  10 OG  railroads  leased  to  other 
companies  were  subjected  to  the  tax  of  three  per  cent  on  divi- 
dends in  excess  of  four  per  cent.:}: 

A  further  step  to  prevent  evasion  was  taken  in  1899§  when  the 
"  value  of  all  franchises,  rights,  authority  or  permission  to  con- 
struct, maintain  or  operate,  in,  under,  above,  upon,  or  through, 
any  streets,  highways  or  public  places,  any  mains,  pipes,  tanks, 
conduits  or  wires,  with  their  appurtenances,  for  conducting  water, 
steam,  heat,  light,  power,  gas,  oil  or  other  substance,  or  electricity 
for  telegraphic,  telephonic  or  other  purposes  "**  was  declared  to 
be  real  estate,  and  assessable  by  the  State  Tax  Commission  for 
State  and  local  purposes.  These  special  franchises  had  often 
escaped  taxation  prior  to  this,  since,  as  personalty,  any  indebted- 
ness could  be  deducted  from  their  value.  This  was  an  important 
step  in  advance.  There  has  been,  however,  much  difficulty  in 
defining  the  special  franchise,  and  the  operation  of  the  law  has 
been  greatly  hindered  in  consequence.  Further,  equalization  of 
special  franchises  and  other  real  estate  was  not  permitted  until 
1911,f  f  and  the  more  efficient  central  assessment  led  to  discrimi- 
nation against  the  possessors  of  franchises.  Much  litigation 
ensued,  and  half  of  the  taxes  imposed  between  1899  and  1911 
remained  unpaid  at  the  end  of  that  period.  There  has  been  less 
trouble  since  this  amendment. 


*  Statutes.  1896,  chap.  908. 

fibid.,  1896,  chap.  908. 

tJ6«f.,  1906,  chap.  477. 

|iWd..  1899.  chap.  712. 
♦*  Tax  Law,  §2. 
tt  Statutes,  1911,  chap.  804. 


95 


Largely  to  clear  up  ambiguities  in  interpretation  of  an  earlier 
law  corporations  were  re-classified  in  1906  for  purposes  of  the 
capital  stock  tax  as  follows:* 

(1)  Those  corporations  earning  six  per  cent  or  more  on 
par  to  be  taxed  at  the  rate  of  one-fourth  of  one  mill  on  each 
dollar  of  par  value  of  stock  for  each  one  per  cent  of  divi- 
dends. 

(2)  Those  earning  no  dividends,  or  in  case  assets  do  not 
exceed  liabilities  or  market  price  does  not  exceed  par  those 
earning  less  than  six  per  cent,  to  be  taxed  at  the  rate  of 
three-fourths  of  a  mill  per  dollar  on  the  appraised  value  of 
capital  stock. 

(3)  Those  earning  less  than  six  per  cent  but  with  assets 
in  excess  of  liabilities  or  market  price  in  excess  of  par  to  be 
taxed  at  the  rate  of  one  and  one-half  mills  on  the  appraised 
value  of  capital  stock. 

(4)  All  corporations  not  taxable  under  classes  (l)-(3) 
to  be  taxed  at  not  less  than  one  and  one-half  mills  on  the 
actual  value  of  the  capital  stock. 

The  present  system. —  Elsewhere  in  this  report  the  present 
methods  of  taxing  the  public-service  corporations  operating  in  the 
State  of  New  York  are  fully  described.!  The  following  brief 
summaiy  will  be  sufficient  for  the  purpose  of  this  chapter: 

(1)  All  public  utility  corporations  are  subject  to  state 
franchise  taxes:  (a)  In  the  case  of  steam  railroads,  other 
transportation  companies  (except  elevated  or  surface  rail- 
roads not  operated  by  steam)  and  telegraph  and  telephone 
companies,  the  general-franchise  tax  is  based  upon  the 
capital  stock  (par  value)  of  the  corporation,  at  variable 
rates,  depending  upon  the  dividend  rate,  the  relation  of 
assets  to  liabilities,  and  the  average  market  price  of  the 
stock,  (b)  Elevated  and  surface  railroads  not  operated  by 
steam  pay  1  per  cent  of  their  gross  earnings  from  all  sources 
witiin  the  State  and  3  per  cent  upon  the  amount  of  divi- 
dends in  excess  of  4  per  cent  upon  the  actual  amount  of 
paid-up  capital,  (c)  Water,  gas,  and  electric  companies  are 
similarly  taxed  at  one-half  of  1  per  cent  on  gross  earnings 

♦  Ibid.,  1906,  chap.  474. 
t  Cf.  infra,  p.  176  et  seq. 


<«h 


-rSfmm 


J 


i 


I 


96 

from  all  sources  within  the  State  and  3  per  cent  upon  divi- 
dends in  excess  of  4  per  cent. 

(2)  Steam  railroads,  other  transportation  corporations 
(except  elevated  or  surface  railroads  not  operated  by  steam) 
and  telegraph  and  telephone  corporations  are  subject  also  to 
the  additional-franchise  tax.  This  is  a  tax  of  one-half  of  1 
per  cent  of  gross  intra-state  earnings  (beginning  and  termi- 
nating within  the  State). 

(3)  The  special-franchise  tax  is  imposed  upon  all  public- 
utility  corporations.  It  is  a  property  tax  upon  the  value  of 
the  right  to  occupation  and  use  of  the  streets,  highways, 
public  places,  or  public  waters  of  the  State.  The  value  of 
tangible  property  situated  upon  such  streets,  highways,  etc., 
is  included.  The  State  Tax  Commission  determines  annu- 
ally the  value  of  special  franchises  subject  to  assessment  in 
each  city,  town  or  village.  Upon  these  values,  as  finally 
equalized,  the  local  authorities  levy  the  local  property-tax 
rate. 

(4)  Finally  all  public-utility  corporations  are  subject  to 
a  state  tax  on  real  estate,  which,  with  the  exception  of  the 
franchise,  is  locally  assessed,  and  to  the  local  general-prop- 
erty tax  on  real  estate  and  tangible  personal  property  (except 
that  assessed  with  special  franchises). 

Defects  of  the  present  system.—  ]^^ew  York's  taxation  of  pub- 
lic-utility corporations  is  not  a  unified  system  based  upon  any 
recognized  principle.  It  has  grown  up  historically  by  piecemeal 
legislation  applied  at  different  times  to  diiferent  classes  of  corpora- 
tions.   The  result  violates  nearly  all  the  canons  of  sound  taxation. 

Lack  of  Certainty. —  Certainty  is  one  of  the  most  essential 
features  of  a  good  tax  system.  Certainty  requires  that  a  tax  be 
based  upon  and  measured  by  certain  definite  indices,  which  should 
be  matters  of  fact  readily  ascertainable  by  both  the  taxing  officials 
and  the  taxpayer.  Determination  of  the  amount  of  tax  due  from 
any  taxpayer  should  not  be  a  matter  of  personal  judgment.  No 
matter  how  upright  and  efficient  the  taxing  officials,  no  matter  how 
willing  the  taxpayer  to  contribute  his  fair  share,  taxes  based  on 
judgment  and  opinion  are  sure  to  lead  to  inequality  and  suspicion. 
At  the  worst,  the  result  will  !be  gross  injustice  and  corruption. 


I 


97 

New  York's  taxation  of  public-utility  corporations  is  marred  by 
gi'eat  uncertainty.  This  is  noticeably  true  of  the  special-franchise 
tax.  There  is  no  entirely  satisfactory  way  of  determining  the 
precise  value  of  the  special  franchises  to  use  the  public  highways. 
Such  determination  necessarily  involves  a  large  measure  of 
personal  judgment.  Given  exactly  the  same  data,  two  experts  of 
equal  ability  and  honesty  would  never,  except  by  accident,  arrive 
at  the  same  result.  This  situation  is  recognized  by  the 
Tax  Commission  in  the  methods  for  determining  intangible  fran- 
chise values  which  it  has  adopted  in  accordance  with  thu  so-called 
"  net  earnings  rule  "  as  prescribed  by  the  courts,  i.  e.,  by  capital- 
izing the  profits  of  the  corporation  in  excess  of  a  certain  rate  upon 
the  value  of  the  investment.  This  is  prc^bably  the  best  way 
out  of  the  difficulty,  but  the  arbitrariness  of  the  method  and  the 
uncertainty  of  the  factors  involved  (in  particular  the  value  of  the 
investment  and  the  rate  of  interest)  are  strong  testimony  to  the 
impossibility  of  finding  any  certain  measure  of  intangi'ble  fran- 
chise values. 

The  tangible  part  of  the  special-franchise  tax  presents  scarcely 
less  difficulty.  How  are  the  tracks,  wires,  poles,  conduits,  etc.,  of 
a  public  utility  corporation  to  be  valued?  There  is  difference  of 
opinion  as  to  the  proper  basis  of  valuation  (cost,  replacement 
value,  etc.,  with  or  without  depreciation)  and  when  a  method  is 
decided  upon,  the  result  itself  is  always  a  matter  of  opinion,  more 
or  less  trustworthy.  Such  property  is  of  value  only  as  part  of  the 
whole  equipment  of  the  corporation  as  a  going  concern.  Its 
separate  valuation  as  a  basis  of  taxation  will  always  involve 
serious  uncertainty. 

As  evidence  of  the  difficulties  which  confront  the  State  Tax 
CoBimission  in  administering  the  special  franchise  tax,  the  fol- 
lowing extract  from  the  Commission's  annual  report  for  1919*  is 
pertinent : 

^*  Because  of  unusual  and  what  appeared  to  be  abnormal 
conditions  during  the  past  three  years,  increased  cost  of  labor 
and  material,  and  because  of  the  fact  that  most  of  these  pub- 
He  utilities  are  operating  at  a  rate  fixed  before  these  changes 


♦  p.  24. 


98 

in  operating  costs  occurred,  the  computation  of  tliese  values 
in  many  instances  has  become  exceedingly  difficult  and  com- 
plex, and  the  Commission,  believing  that  the  value  of  the 
special  franchise  privilege  ought  not  to  be  subject  to  violent 
fluctuations,  either  up  or  down,  has  deemed  it  fair  as  between 
the  corporations  and  the  public,  to  base  its  computations  upon 
a  condition  shown  by  an  average  period  of  five  years  where 
this  would  produce  fair  valuations.  This  has  been  done  with- 
out committing  the  Commission  to  a  hard  and  fast  rule,  but 
has  been  applied  in  the  exercise  of  its  best  judgment  to  do 
as  far  as  possible  equal  and  exact  justice  in  all  cases." 

What  has  been  said  of  the  special-franchise  tax  applies  also 
to  the  general-property  tax,  especially  to  the  tax  upon  personal 
property.  Assessments  are  always  a  matter  of  judgment,  often 
presenting  the  widest  latitude  for  difference  of  opinion.  The 
fatal  uncertainty  of  the  tax  on  personal  property  is  too  well 
known  to  require  fui*ther  explanation  or  emphasis  in  this  report. 

Arbiteakixess. — A  sound  tax  system  will  not  be  arbitrary, 
except  as  required  by  the  necessities  of  effective  administration. 
Arbitrariness  means  inequality  and  so  defeats  the  requirement 
of  justice.  Arbitrariness  is  the  natural  result  of  uncertainty, 
as  has  been  shown  by  the  example  of  the  special  franchise  tax. 
Arbitrariness  may  also  occur  in  the  statute  itself.  The  general- 
franchise  tax  on  steam  railroads  and  certain  other  transporta- 
tion corporations  and  on  telegraph  and  telephone  companies  is 
a  case  in  point.  The  tax  is  based  on  the  par  value  of  the  capital 
stock.  Xow  par  value  may  agree  with  the  real  value  of  the  capi- 
tal or  it  may  not.  Generally  par  value  is  meaningless  as  an 
index  of  either  the  book  value  or  the  market  value  of  the  invest- 
ment. This  fact  is  recognized  in  the  statute,  where  the  tax  rate 
is  made  to  depend  also  upon  the  dividend  rate,  the  relation  be- 
tween assets  and  liabilities,  and  the  market  value  of  the  stock. 
This  is  at  best  a  clumsy  attempt  to  put  meaning  into  the  tax 
on  capital  stock,  to  correct  an  arbitrary  method  by  means  of 
arbitrary  refinements.  The  result  can  scarcely  be  called  a  suc- 
cess from  the  standpoint  of  equitable  taxation. 

The  present  taxes  on  dividends  are  based  on  no  logical  prin- 
ciple.    Corporation  taxes  are  to  be  regarded  either  as  an  impost 


99 

upon  the  corporation  as  an  entity  or  as  a  means  of  indirectly 
taxing  the  stockholders.  Most  of  the  existing  taxes  embody  the 
former  idea.  On  the  other  hand,  the  taxes  on  dividends,  which 
form  part  of  the  franchise  taxes  on  electric,  elevated  and  sur- 
face railroads  and  water,  gas,  and  electric  companies,  involve  the 
principle  of  a  tax  upon  the  stockholders.  There  is  no  excuse 
for  a  tax  on  dividends,  if  the  purpose  is  to  tax  the  corporation 
as  such.  In  that  case  such  a  tax  should  be  imposed  on  all  cor- 
porate profits,  whether  distributed  in  dividends  or  not.  On  the 
other  hand,  if  the  purpose  is  to  tax  the  stockholders  upon  their 
income  from  investment  in  public-utility  corporations,  the  present 
taxes  on  dividends  are  a  very  crude  device.  The  correct  means  to 
this  end  is  the  individual  income  tax.  !N"ew  York  now  has  the 
individual  income  tax  and  there  is  no  longer  any  excuse  for  the 
collection  of  taxes  on  coi-porations  based  on  dividends  declared  or 
paid. 

Lack  of  Simplicity. —  An  important  feature  of  a  good  tax 
system  is  simplicity.  The  extraordinary  complexity  of  the  New 
York  tax  on  public  utility  corporations  is  obvious  from  the  most 
cursory  survey.  It  is  indicated  by  the  mere  abstract  of  the  laws 
given  above.^     It  is  emphasized  by  the  criticisms  which  have 

*  The  following  extract  from  the  law  speaks  for  itself: 

Franchise  Tax  on  Corporations. —  For  the  privilege  of  exercising  its  corporate  franchises  in  thia 
state  every  domestic  corporation,  joint-stock  company  or  association,  and  for  the  purpose  of 
doing  business  in  this  state,  every  foreign  corporation,  joint-stock  company  or  association,  shall 
pay  to  the  state  treasurer  annually,  in  advance,  an  annual  tax  to  be  computed  upon  the  basia 
of  the  amount  of  its  capital  stock,  employed  during  the  preceding  year  within  this  state,  and  upon 
each  doUar  of  such  amount.  The  measure  of  the  amount  of  capital  stock  employed  in  this  state 
shall  be  such  a  portion  of  the  issued  capital  stock  as  the  gross  assets  employed  in  any  business 
\vithin  this  state  bear  to  the  gross  assets  wherever  employed  in  business.  For  purposes  of  taxa- 
tion, the  capital  of  a  corporation  invested  in  the  stock  of  another  corporation  shall  be  deemed  to 
be  assets  located  where  the  physical  property  represented  by  such  stock  is  located.  If  the  divi- 
dends upon  the  capital  stock  amount  to  six,  or  more  than  six  per  centum  upon  the  par  value  of 
the  capital  stock,  during  any  year  ending  with  the  thirty-first  day  of  October,  the  tax  shall  be  at 
the  rate  of  one-quarter  of  a  mill  for  each  one  per  centum  of  dividends  made  or  declared  upon  the 
par  value  of  the  capital  stock  during  said  year.  If  such  dividend  or  dividends  amount  to  less 
than  s«  per  centum  on  the  par  value  of  the  capital  stock,  and 

(1)  The  assets  do  not  exceed  the  liabilities,  exclusive  of  capital  stock,  or 

(2)  The  average  price  at  which  such  stock  sold  during  said  year  did  not  equal  or  exceed  its  oar 
value,  or  . 

(3)  If  no  dividend  was  declared,  f^'^iX-  -  1 
Then  each  dollar  of  the  amount  of  capital  stock  employed  in  this  state,  determined  as  hereinbefore 

provided,  shall  be  taxed  at  the  rate  of  three-fourths  of  one  mill.     If  such  dividend  or  dividend* 
^"l^V^r^u^         *        ^*^  ^^  centum  on  the  par  value  of  the  capital  stock,  and 
.u'^^L    ®  assets  exceed  the  UabiUties,  exclusive  of  capital  stock,  by  an  amount  equal  to  or  greater 
than  the  par  value  of  the  capital  stock,  or 

(2)  The  average  price  at  which  such  stock  sold  during  said  year  is  equal  to  or  greater  than  th» 
par  value. 

Then  the  amount  of  capital  stock,  determined  as  hereinbefore  provided  to  be  employed  in  thia 
state,  shall  be  taxed  at  the  rate  of  one  and  one-half  mills  on  each  dollar  of  the  valuation  of  the  capital 
stock  employed  m  this  state,  but  such  valuation  shall  not  be  less  than 

(1)  The  par  value  of  such  stock, 

(2)  The  difference  between  the  assets  and  liabilities,  exclusive  of  capital  stock, 

(3)  The  average  price  at  which  such  stock  sold  during  said  year. 

If  such  corporation,  joint-stock  company  or  association  shall  have  more  than  one  kind  of  capital 
Btock,  and  upon  one  of  such  kinds  of  stock  a  dividend  or  dividends  amounting  to  six  or  more  than 
BIX  per  J'entum  upon  the  par  value  thereon,  has  been  made  or  declared,  and  upon  the  other  no 
dividend  has  been  made  or  declared,  or  the  dividend  or  dividends  made  or  declared  thereon  amount 
to  less  than  six  per  centum  upon  the  par  value  thereof,  then  the  tax  shall  be  at  the  rate  of  one- 


100 

already  been  made.  The  general-franchise  tax  upon  steam  rail- 
roads, etc.,  with  its  complicated  system  of  rates  on  capital  stock 
varying  according  to  dividend  rates,  relation  of  assets  and  liabil- 
ities, and  average  price  of  stock  sold,  furnishes  a  fine  example 
of  failure  to  secure  simplicity. 

The  complexities  of  the  special-franchise  tax  have  been  exposed 
in  the  criticism  already  made  upon  that  tax. 

The  lack  of  simplicity  in  the  general-property  tax  is  well  known. 
It  arises  in  part  from  the  difiiculties  inherent  in  the  assessment  of 
the  complicated  properties  of  the  pulblic-utility  corporations.  In 
part  it  is  the  result  of  local  administration.  A  great  railroad  sys- 
tem or  telegraph  company  is  taxed  on  odd  bits  of  its  tracks  or 
lines  in  hundreds  of  tax  districts.  Its  officers  must  keep  track  of 
thousands  of  different  assessments  and  thousands  of  different 
levies  at  as  many  different  rates.  It  receives  thousands  of  dif- 
ferent tax  bills  for  amounts  varying  from  thousands  of  dollars 
down  to  a  few  cents.  An  enormous  burden,  quite  in  addition  to 
the  actual  amount  of  its  taxes,  is  thus  placed  upon  the  larger  pub- 
lic-utility corporations. 

The  'New  York  system  is  the  result  of  historical  growth.  There 
is  no  logical  necessity  for  such  lack  of  simplicity.  No  tax  ought 
to  be  so  complicated  as  the  general-franchise  tax  on  steam  rail- 
roads, etc.  There  is  no  need  of  so  many  different  taxes  or  so  much 
difference  between  the  several  classes  of  corporations.  The  lack  of 
simplicity  is  a  heavy  burden  upon  the  taxing  officials.  It  is  a 
burden  and  a  source  of  annoyance  to  the  taxpayers.     It  defeats 

equality  and  justice. 

The  Cost  of  Complexity. — There  is  an  important  aspect  of 
complexity  which  is  often  overlooked.  The  unnecessary  cost  of 
administering  a  tax  is  a  dead  loss.  In  return  for  taxes  paid  the 
citizens  presumably  receive  governmental  services.    But  it  is  only 

Quarter  of  a  mill  for  each  one  per  centum  of  dividends  made  or  declared  upon  the  capital  stock 
upon  the  par  value  of  which  the  dividend  or  dividends  made  or  declared  amount  to  six  or  more 
than  six  per  centum,  and  in  addition  thereto  a  tax  shall  be  charged  upon  the  capital  stock 

(1)  Upon  which  no  dividend  was  made  or  declared,  or 

(2)  Upon  which  the  dividend  or  dividends  made  or  declared  did  not  amount  to  six  per  centum 

upon  the  par  value,  ,  .        .        .    ,        ,  v  v        j-  -j     j 

At  the  rate  as  hereinbefore  provided  for  the  taxation  of  capital  stock  upon  which  no  dividend 
was  made  or  declared,  or  upon  which  the  dividend  or  dividends  made  or  declared  did  not  amount 
to  six  per  centum  on  the  par  value.  u  n  l    x      j  • 

All  corporations  not  taxable  under  the  preceding  paragraphs  of  this  section  f  naU  be  taxed  m  an 
amount  not  less  than  would  be  produced  by  an  assessment  of  one  and  one^half  miite  on  each  one 
dollar  of  the  actual  value  of  its  capital  stock,  determined  to  be  employed  in  this  state  as  herem- 
before  provided,  or  one  and  one-half  mills  upon  each  dollar  of  such  capital  stock  at  the  average 
price  at  which  said  stock  sold  during  the  said  year.     {Tax Law,  art.  9,  §  192.) 


101 


the  net  proceeds  of  a  tax  which  enable  the  government  to  perform 
its  services.  The  burden  of  a  tax  is  measured  by  the  amount  taken 
from  the  taxpayers.  The  benefit  is  measured,  at  best,  by  the  net 
yield  of  the  tax  to  the  government.  The  difference  between  these 
amounts  is  the  cost  of  administration.  A  certain  cost  is  of  course 
unavoidable.  But  any  excess  above  the  necessary  minimum  is  a 
dead  loss.  A  century  and  a  half  ago  Adam  Smith,  in  his  now 
famous  maxims  of  taxation,  made  this  statement :  "  Every  tax 
ought  to  be  so  contrived  as  both  to  take  out  and  to  keep  out  of  the 
pockets  of  the  people  as  little  as  possible  over  and  above  what  it 
brings  into  the  public  treasury  of  the  state."*  The  more  compli- 
cated the  tax,  the  greater  is  the  cost  of  administration.  There 
can  be  no  doubt  that  the  simplification  of  the  taxes  on  public-utility 
corporations  would  materially  reduce  the  dead  loss  of  taxation  in 
New  York  and  make  possible  either  increased  service  from  the 
government  or  a  reduced  burden  on  the  taxpayers. 

The  dead  loss  from  taxation  appears  not  only  in  the  excessive  cost 
to  the  State.  It  is  just  as  truly  represented  by  the  burden  of  time 
and  expense  imposed  upon  the  taxpayer  in  complying  with  com- 
plicated tax  laws.  The  labor  of  keeping  special  accounts,  of  filling 
out  complicated  forms,  of  deciding  doubtful  points  in  the  interpre- 
tation of  the  facts  or  of  the  law,  of  contesting  assessments,  etc., 
etc.,  necessitates  an  expenditure  for  clerical  force,  accountants,  tax 
experts,  and  attorneys,  which  is  a  very  serious  burden  to  many 
corporations. 

In  order  to  secure  some  indication  of  what  this  means  to  the 
public  utilities  of  the  State,  the  committee  sent  a  questionnaire  to 
the  companies  asking  for  an  estimate  of  the  expenses  involved  in 
paying  their  taxes  and  contesting  their  assessments.  The  detailed 
results  of  this  inquiry  are  given  in  Part  II  of  this  report. f  It  is 
obvious  that,  due  to  difficulties  of  accurate  segregation,  the 
expenses  as  reported  contain  a  considerable  margin  of  error.  In 
general  it  appears  that,  for  330  out  of  a  total  of  1,628  corporations 
circularized,  the  total  annual  expenses  involved  in  paying  their 
taxes  aggregated  no  less  than  $256,868.  In  addition  to  this,  9S 
companies  reported  an  annual  cost  of  contesting  assessments  of 

*  Wealth  of  Nations,  Book  V,  chap.  2. 
t  Cf.  infra,  p.  173  et  seq. 


i  r  • 


102 

$109,917.    Of  the  total,  $366,785,  48  per  cent  represents  costs  con- 
nected with  the  special-franchise  tax. 

Whatever  can  ibe  done  to  introduce  simplicity  into  the  tax  sys- 
tem will  relieve  the  taxpayers  of  what  has  become  a  very  material 
business  expense  and  will  by  just  so  much  reduce  the  dead  loss 
burden  of  taxation. 

In  conclusion  it  can  be  said  that  the  only  parts  of  the  present 
system  which  do  not  possess  in  full  the  faults  of  uncertainty,  arbi- 
trariness, and  lack  of  simplicity  are  the  gross-earnings  taxes  which 
appear  (a)  in  the  additional-franchise  tax  on  steam  railroads,  cer- 
tain other  transportation  corporations,  and  telegraph  and  telephone 
corporations,  and  (b)  in  the  franchise  taxes  on  elevated  and  sur- 
face railroads,  not  operated  by  steam,  and  water,  gas  and  electric 
companies.  These  taxes  are  certain  and  simple.  They  are  not 
altogether  free  from  arbitrariness,  in  that  they  are  not  closely 
related  to  the  tax-paying  ability  of  the  corporations,  which  is  best 
measured  by  net  earnings.  They  are  also  defective  in  being  limited 
to  earnings  from  business  or  sources  within  the  state  and  taking 
no  account  of  interstate  business.  This  is  not  a  very  serious 
defect  in  the  case  of  the  greater  part  of  the  electric  elevated  and 
surface  railroads  and  the  water,  gas  and  electric  companies,  most 
of  whose  business  is  in  the  S'tate.  In  the  case  of  steam  railroads 
and  telephone  and  telegraph  companies,  however,  it  means  that 
New  York  is  by  no  means  reaching  her  fair  share  of  the  total  gross 
earnings.  The  present  gross-earnings  taxes  are  good  so  far  as  they 
go.  They  serve  a  purpose  now  as  supplementary  taxes.  They  are 
based  upon  a  principle  which,  when  properly  extended,  and  with 
certain  modifications,  might  furnish  the  basis  for  an  improved 
method  of  taxing  all  public-utility  corporations.* 

Results  of  the  statistical  inquiry.—  In  addition  to  the  defects 
of  uncertainty,  arbitrariness  and  <?omp"'exity,  the  present  taxes  on 
public  utilities  are  found  to  be  grossly  unequal  in  their  applica- 
tion and  in  certain  cases  unreasonably  heavy  in  amount.  Part 
II  of  this  report*  is  devoted  almost  entirely  to  the  presentation 
of  the  results  of  a  statistical  analysis  of  actual  resuHs  of  the 
various  complicated  taxes  imposed  on  public  utilities  in  this  State. 
A  completely  accurate  summary  of  these  results  cannot  be  given 

♦  Cf.  infra,  p.  114. 


103 

in  a  few  words  and  for  a  full  understanding  of  the  basis  of  the 
inquiry  and  the  significance  of  the  figures  the  reader  is  referred 
to  the  text  of  the  study.  Certain  of  the  more  important  findings 
only  may  be  indicated  here. 

In  the  first  place,  the  investigation  has  shown  that  there  is 
a  wide  variation  in  the  relative  importance  of  the  different  types 
of  taxes  paid  by  the  public  utility  groups.  The  table  which 
follows  presents  a  comparison  of  the  percentage  distribution  of 
the  taxes  paid  by  the  different  classes  of  public  service  cor- 
porations : 

TABLE    13 

Percentage   DisTRiBUTioisr   of   Taxes   on   Public   Utilities, 

1918-1920 

Total 
Total  general 

general  property 

property       Total  iod 

(real  ana       special         special  Total 

Class  of  Utilitt  personal)    franchise    franchise        State 

Steam  railroads 79.1  13.6  92.7  7.3 

Electric  railways  (including  subways) 36.9  49.3  86.2  13.8 

Telephone  and  telegraph 28.9  53.5  82.4  17.6 

Gas  and  electric  companies 46.3  44.7  91.0  9.0 

Total  pubUc  utilities 54.1  35.2  89.3  10.7 

The  most  significant  facts  revealed  by  the  analysis  were  those 
dealing  with  the  actual  burden  of  taxes  in  terms  of  net  income. 
While  this  standard  of  burden  is  not  entirely  satisfactory  in  all 
respects,  it  seemed  to  be  the  most  suitable  for  the  comparison 
desired.  In  terms  of  this  standard  the  widest  discrepancies  were 
revealed,  inequalities  which  were  even  more  pronounced  when 
different  corporations  within  a  given  group  were  compared  than 
when  the  average  figures  for  different  groups  were  considered. 
That  is,  the  present  system  of  taxing  public  utilities  is  not  only 
unfair  as  between  different  groups  of  utilities,  but  puts  very 
unequal  burdens  upon  competing  corporations  of  the  same  type. 
The  detailed  tables  in  Part  II  present  these  facts  in  detail.  The 
following  summary,  relating  to  fifty-six  electric  railroad  cor- 
porations, will  serve  as  an  example  of  the  degree  of  inequality 
prevailing  within  a  typical  group.  The  example  given,  it  should 
be  stated,  is  from  a  group  bearing  a  particularly  heav\'  tax  burden. 


M 


104 


TABLE    14 

Relation  of  Total  State  and  Local  Taxes  to  IN'et  Ixcc):me, 

Electkic  Railways  in  I^ew  York  State 

Based  upon  the  average  annual  tax  payments  and  the  average  annual  net  income  duriii  the 

period  1911-1920. 

Percentage  of  net  income  paid  in  taxes 

Number  paying 

. ■ . , 

--      ,       -_      ^          ^  50 per  100  per  200  per  250  per  6««  {>er 

Number  Number      Less  cent  to  cent  to  cent  to  cent  to  r^at  to 

in        showing  than  50  99  per  149  per  249  per  299  per  64 »  per 

class       deficit    per  cent  cent       cent          cent  cent  cant 
Class* 

^ 112  3  *  2  1     

g 27  8  10  4  1     3  1 

C 19  11  4  1  2  1     

Total 56    22  18  7  4  1  3  T 

*  Class  A  corporations  are  those  with  operating  revenue  $1,000,000  or  over.     Class  B  those 
T      ci^*i)2f  revenue  from  $100,000  to  SI, 000,000.     Class  C  those  with  operating  rever.,:-^  less 

Inequalities  similar  to  those  prevailing  within  this  gTi>up, 
though  less  pronounced,  are  found  in  every  other  group  of  public- 
service  corporation. 

For  the  purpose  of  comparing  the  burden  of  present  taxes 
upon  different  classes  of  public-service  corporations,  average  rela- 
tions for  each  of  the  chief  classes  have  been  established.  The 
following  table  presents  the  results  of  a  comparison  in  which  the 
total  taxes  paid  by  a  representative  list  of  corporations  of  eacli 
type  have  been  expressed  as  percentages  of  the  total  net  income 
of  the  same  corporations.  This  comparison  relates  only  to  cor- 
porations operating  at  a  profit. 

TABLE  15 

Ratio  of  Aggregate  State  and  Local  Taxes  to  Aggkegate 
INet  Income,  Public  Sekvice  Corporations  Operating 
AT  A  Profit. 

Rati,>  of 
tax^^fl  to 

net 
income 
(expr^Awd 
Number  of  as  a 

-.,  ,_  corporations     percentage 

Class  of  Utiutt  included  relati  ju) 

Steam  railroads g7  27  .*? 

Electric  railways !!.*!!!!!!!!!  84  44  ^^ 

Telephone  and  telegraph !.!!!!!..!!!!!!!!  62  H  S 

Gas  and  electric .'.*.'.',*.*.'.'.*.'  97  23  0 

That  public  utilities  as  a  group  pay  a  larger  percentage  of  their 
net  income  in  taxes  than  any  other  class  of  corporations  djing 


\ 


J 


.4  • 


105 

business  in  the  State  is  clear  from  this  comparison.  In  part, 
this  burden  is  heavier  because  of  the  fact  that,  from  the  very 
nature  of  the  services  rendered,  more  real  property  is  employed 
by  this  class  of  corporations  than  by  business  corporations  gen- 
erally. The  figures  given  indicate,  also,  how  pronoumced  are  the 
inequalities  between  the  different  public  utility  groups.  At  one 
extreme  stand  telephone  and  telegraph  companies,  paying  16.fi 
per  cent  of  their  net  income  in  taxes,  while  at  the  other  extreme 
stand  the  electric  railways.  Those  included  in  the  sample  studied 
paid  an  average  of  44.4  per  cent  of  their  net  income  in  taxes. 
Many  of  these  companies,  bound  by  a  fixed  low  rate  of  fare, 
have  been  literally  taxed  into  bankruptcy. 

TABLE    16 

TiATio  OF  Aggregate  Local  Taxes  (Special  Franchise  and 
General  Property,  to  Aggregate  IN'et  Income 

Tuhlic  Service  Corporations  Operating  at  a  Profit,  1911-1920 


(Excluding  corporations  showing  a  deficit) 


Ratio  of  aggregate 
local  taxes  (special 
franchise  and  gen- 
eral property)  to 
net  income  (ex- 


Number  of  corpora- 
tions includea 

pressed  as  a  per- 
centage relation) 

87 
34 
62 

34.60 
38.05 
12.10 

4.5 
19 
15 
18 

21.0 
24.6 
22.9 
10.3 

97 

20.50 

Class  of  Utility 

SteaiJi  railroads 

Eleotric  railways 

Telephone  and  telegraph 

Gas  and  Electric: 

£Jectric  light  and  power 

Gas  and  electric  (combined) .  .  .  .  , 

Gas  (manufactured) , 

Gas  (natural) 

Total  gas  and  electric 


Similar  inequalities  are  found  in  the  matter  of  State  taxes, 
though  the  absolute  amount  of  these  taxes  is  much  smaller. 

The  ratio  for  steam  railroads  is  materially  smaller  than  tliat 
for  electric  roads,  with  the  other  two  groups  standing  between 
these  limits. 

Figures  which  have  been  presented  in  the  earlier  pages  of  this 
report  have  indicated  the  burden  of  state  and  local  taxes  oif 
manufacturing  corporations  and  banking  institutions.  It  is 
obvious  that,  if  net  income  be  an  appropriate  standard  by  wbich 

*  For  the  purpose  of  this  comparison,  taxes  on  intangible  elements  in  special  franchise  values 
are  •  lassed  with  non-property  taxes.  The  burden  of  these  non-property  taxes  is  shown  by  the 
tal:t  on  page  260  of  Part  IL 


n^ 


I   i 


106 

to  measure  tax  burden,  the  weight  of  taxes  on  public  service  cor- 
porations is  very  much  heavier  than  on  the  other  corporate  gi'oups. 
This  difference  is,  in  part,  accounted  for  by  the  relatively  greater 
importance  of  real  property  in  the  operations  of  public  utilities, 
but  inequalities  persist  after  property  taxes  have  been  eliminated 
and  the  comparison  is  made  solely  on  the  basis  of  non-property 
taxes.  On  this  latter  basis,  only  steam  railfoads  pay  less  than 
the  4.5  per  cent  of  net  income  paid  by  business  corporations. 
Every  other  utility  group  pays  more  in  these  strictly  non-property 
taxes*  than  business  corporations.  The  present  system  of  taxing 
public  service  corporations  must  be  evaluated  in  the  light  of 
these  facts. 

What  parts  of  the  present  system  may  be  discarded? —  The 
most  significant  feature  of  the  present  situation  in  American 
state  and  local  taxation  is  the  breakdown  of  the  time-honored 
general-property  tax,  by  which  is  meant  the  ad  valorem  tax  at  a 
uniform  rate  on  all  property,  real  and  personal.  The  State  of 
Xew  York  has  already  recognized  this  situation  and  has  gone 
further  than  perhaps  any  other  state  to  meet  it.*  Some  of  the 
worst  features  of  the  existing  taxes  upon  public-utility  coi-pora- 
tions  are  relics  of  the  old  general-property  tax. 

The  Special  Fkanchise  Tax. —  This  is  true  of  the  special- 
franchise  tax.  This  tax  at  one  time  played  a  useful  role.  As  is 
well  known,  it  was  devised  two  decades  agof  in  order  to  correct  a 
defect  in  the  then  existing  statutes  relating  to  the  taxation  of 
public-utility  corporations.  In  !N"ew  York  debts  were  deductible 
from  personal  property,  but  not  from  realty.  Certain  corpora- 
tions with  large  bonded  debts  thus  paid  very  little  tax  upon  their 
personal  property.  The  special-franchise  tax  provided  for  the 
valuation  of  corporate  rights  in  the  public  streets,  highways,  etc., 
and  declared  such  property  to  be  real  estate.  It  was  thereafter 
not  possible  to  deduct  debts  from  this  class  of  property.  A  method 
which  was  legitimate  under  the  old  system  of  the  general-property 
tax  is  no  longer  defensible  under  the  changed  conditions  both 
fiscal  and  economic.  There  is  perhaps  no  single  element  in  the 
whole  system  of  taxation  which  has  given  rise  to  more  vexation 

*  Cf.  infra,  p.  20. 

t  Cf.  historical  section  above,  supra,  p.  94,  et  seq. 


1\ 


;t  .. 


-^^ 


107 

than  the  special-franchise  tax,  and  yet  it  has  yielded  such  large 
revenues  that  it  has  been  impossible  thus  far  to  abolish  it.  The 
time  has  now  come  when  this  entire  tax  should  be  reconsidered. 

The  classification  of  special-franchise  values  as  real  estate 
means  that  these  values  have  been  in  large  measure  pledged  for 
bond  issues  by  the  localities.  The  subtraction  of  these  values 
from  the  local  tax  basis  would  embarrass  many  of  the  localities 
because  of  the  constitutional  restriction  on  local  debts  which  is 
expressed  in  terms  of  a  percentage  of  taxable  real-estate  values. 
If  the  yield  of  a  reorganized  tax  on  public-utilities  is  divided 
equitably  with  the  localities,  the  tax  law  would  involve  no  real 
diminution  in  the  resources  lying  back  of  the  bonds.  The  rigid 
form  of  this  constitutional  debt  limitation  is  the  chief  technical 
bar  to  an  immediate  and  complete  reform  of  public-utility  taxa- 
tion, and  the  Committee  recommends  that  a  constitutional  amend- 
ment he  submitted,  not  increasing  the  debt  limit  by  a  set  i^t- 
centage,  but  providing  that  the  taxation  of  public  utilities  under 
an  improved  state  system,  in  the  yield  of  which  the  localities  iviU 
share,  shall  not  operate  to  diminish  the  borrowing  power  of  the 
localities.  When  this  difficulty  is  removed  the  committee  believes 
that  the  special-franchise  tax  should  be  entirely  abandoned. 

The  State  Fraxchise  Taxes. —  The  State  franchise  taxes  do 
not  deser\'e  a  place  in  a  reorganized  system  of  public-utility  taxes. 
The  defects  of  the  general-franchise  tax  on  steam  railroads,  other 
transportation  corporations  (except  elevated  or  surface  railroads 
not  operated  by  steam),  and  telegraph  and  telephone  corporations 
have  been  pointed  out.  The  tax  is  uncertain,  arbitrary  and  com- 
plicated. A  better  method  of  taxing  these  corporations  can  cer- 
tainly be  devised.  The  tax  on  dividends,  which  is  included  in  the 
franchise  tax  on  electric  elevated  and  surface  railroads  and  water, 
gas,  and  electric  companies,  has  likewise  been  shown  to  be  faulty. 
It  can  no  longer  be  defended  as  a  means  of  taxing  the  stockholders 
upon  their  dividend  income.  As  a  means  of  taxing  the  corpora- 
tions it  is  clumsy  and  inequitable  and  should  give  place  to  a  better 
method.  The  gross-earnings  taxes,  in  their  present  form,  could 
scarcely  stand  alone  after  the  abolition  of  the  other  parts  of  the 
franchise  tax.    If  the  principle  of  the  gross-earnings  tax  is  to  be 


108 

continued  it  shonld  be  as  the  basis  of  a  broad  tax  applying  to 
the  State's  share  of  interstate  business  as  well  as  to  purely  state 
business  and  applying  to  all  public  utility  corporations. 

The  Tax  on  Tangible  Personalty. —  New  York  has  recently 
done  away  with  the  vexations  and  inequitable  tax  on  intangible 
personalty,  thereby  removing  the  worst  feature  of  the  general 
property  tax.  There  remain,  however,  certain  kinds  of  tangible 
personal  property  whose  taxation  is  only  less  futile  than  that 
of  intangibles.  This  is  generally  true  of  the  tangible  personal 
property  of  the  public-utility  corporations.  The  value  of  such 
property  has  little  relation  to  the  ability  of  the  corporation  to  pay 
taxes.  The  assessment  of  such  property  involves  all  the  evils  of 
uncertainty,  arbitrariness,  and  lack  of  simplicity  which  have  been 
pointed  out.  With  the  adoption  of  a  sound  general  basis  for  the 
taxation  of  public-utility  corporations,  the  necessity  of  any  tax 
upon  their  personal  property  will  disappear.  Such  taxation  may 
then  be  abandoned,  to  the  immeasurable  advantage  of  all  parties 
concerned. 

The  Tax  on  Real  Estate. —  There  ought  to  be  left  to  the 
localities  the  income  from  the  tax  on  the  real  estate  of  public  utili- 
ties. What  should  be  included  under  the  term  real  estate  should 
be  carefully  considered.  Certainly  non-operative  real  estate  ought 
to  be  taxed  as  other  real  estate  and  probably  the  operative  real 
estate  (strictly  defined)  as  well.  To  define  real  estate  is  by  no 
means  easy.  However  it  is  proper  here  to  call  attention  to  the 
way  in  which  the  definition  of  real  estate  has  been  broadened  by 
past  legislation  so  as  to  include  certain  classes  of  property  of  pub- 
lic utility  corporations  which  would  appear  to  be  more  correctly 
classified  as  personal  property.  A  revision  of  the  definition  of  real 
estate,  bringing  it  nearer  to  its  former  content,  would  be  conduc- 
ive to  better  taxation  of  that  which  undoubtedly  is  real  estate. 

There  are  very  good  reasons  in  the  cases  of  many  types  of 
utility  real'  estate  why  the  real  estate  should  be  assessed  by  some 
central  authority  which  would  distribute  to  the  localities  the  valu- 
ation of  the  property,  arrived  at  as  a  unit.  Some  modification  of 
the  "unit  system"  is  logically  necessary,  a  modification  which 
would  stress  the  alternative  use  test  and  not  attempt  to  value  the 


«       • 


1  i 


109 

real  estate  on  the  basis  of  the  profits  of  the  company.  A  method* 
is  suggested  by  the  success  of  the  plan  now  in  operation  whereby 
the  State  Tax  Commission  provides  professional  engineering 
assistance  to  local  assessors  in  arriving  at  the  values  of  certain 
types  of  manufacturing  plants.  It  is  possible  that  the  desired  end 
might  be  obtained  if  the  Tax  Commission  were  to  be  empowered 
and  directed  to  value  such  properties  as  the  real  estate  in  the  right 
of  way  of  railways  and  to  recommend  to  the  localities  the  adoption 
of  the  values  so  determined,  as  the  local  assessed  values.  It  is 
almost  certain  that  these  "  recommended  "  values  would  commend 
themselves  to  the  local  assessors.  The  Committee  recomme^ids 
that  the  Tax  Commission  he  supplied  with  a  smxill  force  of  skilled 
engineers  which  wUl  enable  it  to  recommend  the  values  at  which 
the  property  of  public  utilities  shall  be  assessed. 

Conclusion. —  In  conclusion  it  appears  advisable  (1)  to  aban- 
^  don  the  state  franchise  tax,  including  the  additional-franchise  tax 
on  steam  railroad,  certain  other  transportation  companies,  and 
telegraph  and  telephone  companies,  retaining,  under  one  alter- 
native, only  the  gross  receipts  tax  in  an  altered  form;  (2)  to  find 
a  substitute  for  the  special  franchise  tax;  and  (3)  to  simplify 
the  general  property  tax  by  (a)  refining  the  definition  of  real 
estate,  (b)  giving  up  the  taxation  of  tangible  personal  property, 
and  (c)  providing  for  technical  assistance  in  arriving  at  the  values 
of  specialized  types  of  real  estate. 

A  plan  for  the  taxation  of  public  utilities. —  It  appears  from 
the  results  of  the  statistical  inquiry  that  the  public-service  cor- 
porations as  a  whole  are  certainly  contributing  no  less  than  their 
full  share  of  the  cost  of  government  as  compared  with  other  classes 
of  corporations.  Indeed,  when  measured  on  the  basis  of  net  earn- 
ings, each  group  of  public-utility  corporations  except  the  steam 
railroads  appears  to  be  paying  much  more  than  its  share.  The 
needs  of  the  state  and  the  local  bodies,  however,  are  such  that  it  is 
questionable  how  much  immediate  relief  can  be  extended  by  way 
of  reduction  in  the  amount  of  revenue  collected  from  the  public- 
utility  corporations.  Much  depends,  of  course,  upon  what  dis- 
position the  Legislature  makes  of  the  other  recommendations  of 

<!i?^M  ^°5!L®?*  ^*^  of  this  method  is  apparently  made  necessary  by  the  home-rule  proW^iona 
Of  the  Constitution  The  adoption  of  the  committee's  recommendations  for  the  revision  of  this 
provision  would  make  possible  direct  procedure  in  this  case. 


i 


i 


I    i 


110 


this  Committee.  As  a  further  complication,  the  coiitimiaiice,  for 
the  present,  of  the  special  franchise  tax  imposes  a  limit  upon  the 
amount  of  the  reduction  which  can  be  given  at  this  time.  In  the 
previous  section  it  has  been  proposed  to  give  up  certain  taxes  now 
imposed  upon  these  corporations.  It  is  necessary,  therefore,  to 
find  a  substitute  capable  of  jieTding,  if  necessary,  approximately 
as  much  income  as  would  be  lost  on  account  of  the  changes  which 
have  been  recommended. 

General  Considerations. —  A  new  tax  on  public  utilities 
should,  of  course,  avoid  so  far  as  possible,  the  defects  of  the 
present  taxes  as  already  pointed  out.  It  should  be  certain  and  not 
unnecessarily  arbitrary.  It  should  be  simple.  It  should,  if  pos- 
sible, apply  to  all  classes  of  public-utility  corporations.  It  should 
approach  as  nearly  as  possible  to  equality  and  justice  as  between 
different  classes  of  corporation  and  the  members  of  each  class. 

There  exist  wide  differences  of  opinion  as  to  what  constitute 
equality  and  justice  in  the  taxation  of  public  utilities.  What  is 
equitable  under  one  set  of  conditions  becomes  inequitable  when 
the  conditions  change.  Certainly  the  conditions  surrounding  the 
public  utilities  have  changed  very  radically  since  the  closing 
years  of  the  nineteenth  century.  But  public  opinion  today  is 
still  based,  to  a  great  extent,  upon  the  assumption  that  the  old 
conditions  still  obtain.  Before  a  completely  satisfactory  solution 
of  the  problem  can  be  reached  there  must  be  a  much  more  general 
appreciation  of  the  part  which  taxation  should  play  under  the 
conditions  now  present. 

The  Committee  believes  that  the  time  has  come  when  the  whole 
question  of  public  utility  taxation  must  be  reconsidered  in  the 
light  of  the  changed  conditions  with  respect  to  the  public  control 
of  rates  of  charge.  It  is  evident  that  the  State  has  been  using 
the  public  utilities  to  a  considerable  extent  as  tax  collectors,  im- 
posing upon  them  obligations  which  in  many  cases  are  justified 
only  upon  the  assumption  that  the  extra  burden  can  be  passed 
on  in  higher  charges  to  certain  particular  sections  of  the  consum- 
ing public.  Some  can  pass  it  and  some  cannot.  Even  in  the  case 
of  those  which  can  pass  it  on,  the  question  arises  as  to  the  equity 
of  laying  taxes  in  proportion  to  the  use  of  public  utilities. 


\ 


111 


Something  may  perhaps  be  said  for  the  use  of  heavy  public- 
utility  taxes  as  a  method  of  diffusing  widely  the  tax  burden  but 
there  are  better  methods  of  accomplishing  this  end.  In  the 
opinion  of  the  Committee  such  taxes  should  play  a  very  small 
part  in  the  future  of  the  tax  system  of  this  State,  in  case  the 
present  system  of  controlled  rates  proves  to  be  effective  and  is 
continued.  Public  control  of  rates  conditions  the  problem  in  a 
fundamental  manner.  The  true  function  of  a  public-utility  tax 
under  these  circumstances  is  to  supplement  rate  regulation.  It 
should  be  so  designed  that,  in  cases  where  several  companies 
operate  under  the  same  controlled  rate,  as  much  as  possible  is 
recouped  for  the  State  from  the  profits  of  the  companies  which 
arc  so  favorably  circumstanced  as  to  be  able  to  earn  more  than  a 
fair  return.  It  should  be  so  arranged,  also,  as  to  bring  back  into 
the  public  coffers  in  the  case  of  all  companies  as  large  a  share  as 
possible  of  the  profits  arising  from  the  necessary  inexactness  oi 
the  rate  fixing  process.  It  appears  to  the  Committee  that  public 
utilities  may  always  properly  be  taxed  on  their  real  estate  nar- 
rowly defined.  Such  a  tax  partakes  somewhat  of  the  character 
of  a  reimbursement  to  the  locality  for  services  rendered  such  as 
protection  of  the  property.*  The  additional  tax  which  would 
most  closely  fit  the  case  would  be  a  tax  on  pure  economic 
profits.  This  would  be  levied  on  net  income  defined  so 
as  to  permit  the  deduction  of  a  sum  equal  to  a  fair  return  upon 
all  the  monev  invested  whether  borrowed  or  not.  In  other  words, 
it  seems  to  the  Committee  that  if  controlled  rates  are  to  be  con- 
tinued, the  people  of  the  State  should  reconcile  themselves  to  aii 
entirely  different  conception  of  what  is  equitable  in  the  taxation 
of  utilities.  One  of  the  Committee's  tentative  conclusions  is  that 
the  ultimate  program  toward  which  the  State  must  strive  should 
include  a  tax  on  real-estate,  narrowly  defined,  and  a  tax  en  pure 
economic  profit.  The  Committee  is  not  convinced  that  it  should 
contain  any  other  elements. 

Practice  in  Other  States. —  The  practice  of  the  various 
states  in  taxation  of  public-utility  corporations  shows  a  variety  of 
methods,  used  singly  and  in  combinations.  There  is  elsewhere 
in  this  reportf  a  digest  of  the  laws  of  each  of  the  states.     Of 

*  Cf.  supra,  p.  52. 
ilnfra,p.  313  et.  seq. 


112 

the  methods  used,  three  are  of  sufficient  importance  to  deserve 
special  consideration.  These  are  (1)  the  ad  valorem  or  property 
hasis,  (2)  the  capitalization  basis  and  (3)  the  earnings  basis. 

(1)  Under  the  ad-valorem  basis  the  tax  is  imposed  upon  rlie 
value  of  the  property  of  the  corporation.  This  was  the  original 
method  of  taxing  corporations  under  the  general-property  tax. 
In  the  beginning,  the  valuation  was  made  and  the  tax  imposed 
by  the  local  bodies  in  exactly  the  same  way  as  for  natural  per- 
sons. This  crude  method  has  now  been  generally  abandoned.  As 
employed  in  progressive  states  today,  the  ad-valorem  method  in- 
volves a  more  or  less  expert  valuation  of  the  property  of  the 
corporation  as  a  whole,  made  by  a  state  board  or  officer,  generally 
followed  by  apportionment  of  the  taxable  value  thus  determined 
among  the  local  taxing  districts.  In  determining  the  value  of 
the  corporation's  property,  a  variety  of  evidence  is  used.  It  is 
safe  to  say  that  at  present  the  most  weight  is  given  to  the  earning 
capacity  of  the  corporation;  in  other  words,  the  value  of  the 
property  is  determined  primarily  by  capitalizing  the  corporation's 
net  earnings. 

The  ad-vahrem  basis  is  the  one  most  widely  used.  About  half 
of  the  states  rely  on  it  exclusively  for  the  taxation  of  railroads. 
Nearly  as  many  use  it  as  the  exclusive  tax  for  telephone  and 
telegraph  companies.  About  a  dozen  states  use  it  as  the  only 
method  of  taxing  street  railways  and  water,  gas,  and  electric  cam- 
panics.  Ad  valorem  taxes  are  used  in  connection  with  other 
methods  in  many  other  states. 

(2)  The  capitalization  basis  involves  the  imposition  of  a  tax 
upon  the  value  of  the  securities  of  the  corporation.  This  some- 
times includes  only  the  value  of  the  stock;  in  other  cases,  and 
more  correctly,  the  value  of  both  stock  and  bonds  is  used.  It  is 
safe  to  say  that  this  basis  has  generally  proved  unsatisfactory, 
and  is  today  of  declining  importance.  Only  three  or  four  states 
rely  upon  this  method  alone  for  the  taxation  of  one  or  more  of 
the  classes  of  public-utility  corporations.  About  half  a  dozen 
states  use  this  in  connection  with  other  methods. 

(3)  ^ext  to  the  ad-valorem  basis,  the  earnings  basis  is  the 
one  in  widest  use.  The  amount  of  the  tax  is  stated  as  a  certain 
percentage  of  the  earnings.    The  rate  of  the  tax  is  generally  fixed 


•       • 


\       / 


113 

with  the  idea  of  making  the  tax  correspond  at  least  roughly  -v^-ith 
the  burden  of  the  property  tax  on  taxpayers  generally.  The  rate 
is  apt  to  be  different  for  different  classes  of  corporations.  The 
earnings  tax  is  almost  always  based  on  gross  earnings.  Only  two 
states  now  make  use  of  the  net-earnings  basis.  The  gross-earnings 
basis  is  used  for  the  taxation  of  railroads  in  11  states,  for  street 
railways  in  12  states,  for  telephone  and  telegraph  companies  in 
14  or  15  states,  and  for  water,  gas,  and  electric  companies  in  a 
dozen  states.  In  more  than  half  of  these  states  the  gross-earnings 
tax  is  the  exclusive  state  tax. 

Comparison  of  Possible  Bases. — If  the  State  of  New  York  is 
to  adopt  a  single,  unified  method  of  taxing  public  utility  corpora- 
tions, the  choice  will  doubtless  lie  between  the  ad-valorem  basis 
and  the  earnings  basis.  In  spite  of  the  use  of  the  ad-valorem  basis 
by  the  majority  of  the  states,  this  method  is  subject  to  very  serious 
objections.  Whatever  the  process  employed  for  obtaining  the  value 
of  the  corporation's  property,  the  operation  is  difficult  and  ex- 
pensive. To  be  properly  performed,  it  requires  a  large  staff  of 
experts  familiar  with  the  technical  details  of  the  business  of  the 
corporations  involved.  At  the  best,  the  element  of  personal 
judgment  must  always  enter  to  a  large  degree. 

There  are  also  serious  theoretical  questions  involved,  first,  as 
to  the  valuation  of  the  physical  properties,  and  secondly,  as  to 
the  use  to  be  made  of  the  facts  regarding  financial  condition, 
earnings,  etc. 

Another  objection  is  the  rigidity  which  generally  attends  the 
ad-valorem,  method.  Valuations  when  once  made  are  apt  to  re- 
main for  years  without  serious  revision.  This  is  partly  due  to  the 
enormous  difficulty  and  expense  of  a  thorough-going  valuation. 

Finally,  the  fact  remains  that  the  value  of  property  alone  is 
not  a  true  measure  of  a  corporation's  worth  or  of  the  taxes  it 
should  pay.  The  thing  that  really  gives  worth  to  a  corporation 
is  its  earning  power.  It  is  significant  that  so  many  of  the  states 
which  rely  upon  the  ad-valorem,  basis  have  found  it  necessary 
to  take  account  of  earnings  in  arriving  at  the  value  of  the  cor- 
poration's property. 

The  ad-valorem  basis  lacks  simplicity.  It  is  apt  to  become 
arbitrary.     Its  administration  is  difficult  and  expensive.     It  is 


!      ! 


t      ! 


i 


i    I    1 


114 

not  an  accurate  measure  of  the  obligation  or  ability  to  pay  taxes. 
It  does  not  succeed  in  placing  the  burden  of  taxation  equitably. 

The  tax  on  earnings  is  strong  at  the  points  where  the  ad-valorem 
basis  is  weak.  The  earnings  of  a  corporation  are  the  real  basis 
of  its  worth  and  its  taxpaying  ability.  The  earnings  tax  involves 
the  fewest  theoretical  difficulties  and  is  simple  and  inexpensive 
to  administer.  Earnings  are  a  matter  of  fact,  about  which  there 
will  generally  not  be  disagreement.  The  determination  of  net 
earnings  does  involve  certain  valuations  but  in  general  the  ele- 
ment of  personal  judgment  is  relatively  small  as  compared  with 
iiie  property  tax.  The  earnings  tax  is  simple  and  clear,  it  usu- 
ally fluctuates  with  the  prosperity  of  the  taxpaying  corporations, 
and  it  is  generally  equitable  between  corporations. 

The  outstanding  facts  in  recent  tax  history  are  the  concentra- 
tion of  public  opinion  in  favor  of  taxes  upon  incomes  or  eai-nings 
and  the  rapid  development  of  such  taxes.  In  legislation  the  fed- 
eral government  has  taken  the  lead  in  taxing  corporate  and  indi- 
vidual incomes.  Several  states,  notably  California,  Minnesota, 
and  Connecticut  have  led  the  way  in  the  taxation  of  public  util- 
ity corporations  on  the  basis  of  gross  earnings.  A  number  of 
states,  among  whom  Xew  York  is  a  leader,  have  made  progress 
in  the  successful  taxation  of  individual  incomes  and  the  net  in- 
comes of  business  corporations.  The  present  tendency  is  without 
doubt  in  the  direction  of  income  and  earnings  taxes,  which  con- 
firms the  conclusion  in  favor  of  the  earnings  basis  for  the  taxa- 
tion of  the  public-utility  corporations. 

The  next  question  has  to  do  with  the  relative  merits  of  net 
earnings  and  gross  earnings  as  the  basis  of  the  tax.  The  situa- 
tion may  be  summarized  briefly,  as  follows:  iN'et  earnings  are 
the  fairest  and  most  accurate  measure  of  the  ability  to  pay  taxes, 
an  important  advantage  of  this  basis.  On  the  other  hand  the 
gross  earnings  basis  has  the  advantage  of  greater  certainty  and 
simplicity.  Gross  earnings  are  a  matter  of  fact,  clearly  shown  on 
the  ])ooks,  about  which  there  will  seldom  be  difference  of  opinion. 
Determination  of  net  earnings  requires  the  deduction  of  a  great 
variety  of  expenses,  involving  some  exercise  of  judgment  and  the 
l)ossibility  of  disagreement  and  evasion.    Ten  years  ago  this  aroii- 


»     • 


%  1/ 


*    • 


*     • 


*   .♦ 


115 

ment  was  generally  decisive  in  favor  or  the  gross  earnings  basis. 
Today  it  is  not  so  strong.  Under  the  compulsion  of  the  federal 
income  tax,  those  public-utility  corporations  whose  accounts  were 
not  already  prescribed  by  the  Interstate  Commerce  Commission 
have  been  led  to  put  their  accounting  systems  into  order.  Since 
the  federal  returns  of  these  corporations  are  subject  to  inspection 
by  the  officers  of  any  state  imposing  an  income  tax  upon  them, 
tliere  would  appear  now  to  be  much  less  practical  difficulty  in  the 
way  of  the  tax  on  net  earnings  than  formerly,  though  the  advan- 
tage of  extreme  simplicity  still  remains  with  the  gross  earnings 
basis. 

The  decision  between  the  two  bases  really  rests  upon  a  more 
fundamental  question  as  to  the  theory  of  the  corporation  tax.  Is 
the  obligation  to  contribute  to  the  support  of  the  state  to  be  lim- 
ited to  those  corporations  that  make  profits  ?  If  so,  the  net  earn- 
ings tax  is  indicated.  On  the  other  hand,  if  it  is  intended  that 
the  corporations  shall  contribute  whether  they  make  profits  or 
not,  if  taxes  are  to  be  regarded  as  one  of  the  necessary  costs  of 
business,  the  gross  earnings  tax  is  the  proper  method.  Obviously 
the  government  must  function,  in  years  when  business  is  poor 
as  well  as  in  years  of  prosperity.  If  certain  sources  of  revenu'cj 
decline  or  fail,  other  sources  must  make  good  the  loss. 

Taxes  may  be  classified  into  two  groups:  (1)  Those  which  are 
paid  only  out  of  profits  or  net  income,  such  as  the  individual  in- 
come tax  and  the  tax  on  business  corporation  (which  are  already 
on  the  net  earnings  basis),  and  (2)  those  which  continue  with  fair 
regularity  regardless  of  profits  or  which  may  even  be  increased  in 
years  of  business  depression  to  make  good  the  losses  from  other 
sources;  the  only  important  example  (aside  from  the  gross  earn- 
ings tax  on  corporations)  being  the  property  tax.  The  question  is : 
Into  which  class  shall  the  tax  on  public  utility  corporations  be 
put  ?  It  is  not  a  question  of  justice.  All  individuals  pay  the  in- 
come tax  on  incomes  from  (approximately)  all  sources.  All  real 
estate  owners  (including  corporations)  pay  the  real  estate  tax. 
The  corporation  tax  is  an  additional  tax,  to  be  justified  as  a  busi- 
ness tax.    The  choice  between  gross  earnings  and  net  earninors  in- 


1 


116 

voJvcs  no  question  of  jii.^tice,  provided  there  is  no  inequitable  dis- 
*?riniination  between  classes  of  subjects. 

The  real  question  is  the  practical  one  of  how  far  the  State  can 
safely  go  in  narrowing  the  basis  of  taxes  upon  which  it  can  re-Iy 
for  a  regular  income,  regardless  of  fluctuations  in  business  prr>s- 
perity.  There  is  a  strong  tendency  in  this  direction.  The  gen- 
eral-property tax  has  become  practically  a  tax  on  real  estate  0!iU\ 
The  center  of  gravity  of  the  revenue  system  is  rapidly  moving:  to 
the  side  of  net  income  and  net  earnings  taxes.  There  is  danger 
that  the  State  may  iind  itself  dependent  upon  an  irregular  in- 
come, too  great  in  some  years  and  insufficient  in  others,  and  that 
the  property  tax  may  not  be  elastic  enough  to  stand  the  strain 
of  the  lean  years.  The  situation  can  be  met  in  part  by  the  device 
of  averaging  the  net  income  as  recommended  above  in  the  case  od: 
banks.*  It  is  this  consideration  that  dictates  caution  in  going 
over  completely  to  the  net  earnings  basis.  It  is  clear  that  in 
spite  of  the  attractions  of  the  proposal  to  bring  all  corporation 
taxes  into  harmony  with  the  present  tax  on  business  corporatir^ns 
a  certain  amount  of  caution  is  desirable. 

Gkoss-net  Tax  Eecommended. — Taking  into  consideration  all 
the  circumstances,  the  committee  believes  that  it  is  wise  to  recom- 
mend,  as  an  immediate  step,  the  adoption  of  a  tax  on  'public  utili- 
ties hosed  on  the  elements  of  both  gross  and  net  income,  which 
will  replace  the  present  series  of  state  taxes  and  be  articulated 
with  the  special  franchise  tax  so  long  as  it  remains  in  existence, 
replacing  it  entirely  after  the  passage  of  the  proposed  constihi- 
tional  amendment. \ 

Such  a  tax  would  possess  the  advantages  of  certainty,  simplicity 
and  equity.  It  offers  a  method  of  insuring  a  permanent,  stable 
revenue  as  well  as  a  means  of  weighting  the  burden  against  the 
more  prosperous  companies. 

The  precise  form  of:J:  gross-net  tax  which  the  committee  con- 
siders best  suited  to  the  situation  is  one  which  imposes  a  varying 
rate  on  gross  earnings,  the  variation  in  rate  depending  upon  the 
relationship  of  net  to  gross,  the  companies  paying  higher  taxes 
as  their  profits  increase  and  lower  taxes  as  they  decline. 

*  Supra,  p.  90. 

t  Cf.  supra,  p.  107, 

i  For  details,  consult  the  text  of  the  proposed  law,  infra,  p.  371. 


I 


117 

Eelationship  of  Proposed  Gkoss-xet  Tax  to  Special-fkax- 
CKTSE  Tax. —  For  reasons  explained  above  it  is  impossible  to 
abolish  the  special-franchise  tax  at  once.*     The  practical  effect  of 
this  is  that  immediate  relief  to  any  company  under  any  plan 
wiiich  the  Committee  may  devise  is  limited  to  the  amount  of  the 
taxes  which  it  pays  at  present  in  excess  of  the  amount  of  its  special 
franchise  tax.    In  order  that  the  process  of  equalization  as  between 
companies  be  carried  as  far  as  possible  at  once  the  Committee 
suggests  that  the  rates  of  the  gross-net  tax  be  made  sufiieiently 
high  to  produce  the  total  amount  desired  from  the  utility  and  that 
any  payments  made  to  the  localities  on  account  of  special-fran- 
chise taxes  paid  be  offset  against  the  gi'oss-net  tax  due  the  State. 
Thus  a  company  whose  special-franchise  tax  exceeded  the  amount 
of  its  gross-net  tax  would  be  called  upon  to  pay  nothing  to  the 
State,  and  a  comj^any  who^e  special-franchise  tax  amounted  to 
less  than  the  gross-net  tax  would  pay  to  the  State  the  amount  of 
the  excess  only. 

An  additional  advantage  of  this  plan  is  that  it  solves,  during 
the  period  of  the  continuance  of  the  special-franchise  tax,  the 
troublesome  problem  of  the  division  of  the  yield  of  the  tax  between 
state  and  the  localities.  The  localities  would  continue  to  receive 
precisely  the  taxes  they  are  now  receiving,  f 

Definition  of  gross  and  net  income.— The  Committee  su^- 
gett  that  gross  earnings  be  defined  as  all  receipts  from  the 
of>cration  of  a  public-utility  and  that  net  earnings  be  defined  as 
net  earnings  from  the  operation  of  a  public-utility  after  deduction 
of  operating  expenses  and  taxes  assignable  to  operation  except 
sp^^ial-franchise  taxes  in  this  state  or  the  gross-net  tax  itself. 

The  Committee  has  no  definite  suggestion  to  make  at  this  time 
concerning  the  treatment  of  non-operating  income  or  concerning 
the  special  taxation  of  holding  companies.  While  it  is  true  that 
the  subsidiaries  of  a  l^ew  Yoik:  holding  company  are  taxed  where 
'  located,  it  seems  clear  that  the  holding  company  itself  is  transact- 
ing business  in  Xew  York  when  it  maintains  a  central  staff  for 
purchasing,  accounting  and  legal  purposes.  Any  attempt  to  isolate 
the  holding  company  profit  from  the  profits  of  the  subsidiaries  and 
to  allocate  such  holding  company  profits  among  the  various  states 

*  Fupra,  p.  107. 

t  For  a  consideration  of  the  general  problem  of  the  apportionment  of  State  revenues  to  the 
lOf&mies,  Cf.  tnfra,  p.  168. 


lis 

is  confronted  with  very  serious  difficulties.  There  are  no  pre- 
cedents in  other  states  to  guide  action  here.  It  is  preeminently 
a  Xew  York  problem.  Careful  consideration  must  be  devoted 
to  it  in  the  immediate  future  for  the  holding  company  device  is 
susceptible  of  use  as  a  method  of  avoiding  taxes  in  which  net 
income  is  a  factor. 

Illustrative  rates  of  the  proposed  gross-net  tax.—  The  precise 
rates  to  be  applied  would  be  determined  by  a  immber  of  con- 
siderations including  the  financial  necessities  of  government  after 
the  adoption  or  rejection  of  the  committee's  various  recommenda- 
tions and  the  disposition  of  the  Legislature  to  relieve  those  com- 
panies which  are  under  especially  heavy  burdens,  or  to  refrain 
from  continuing  to  use  the  utilities  as  "  tax  collectors."  The  Com- 
mittee suggests  that  the  following  schedule  of  rates  will  yield 
approximately  the  amounts  now  collected  from  the  public-utility 
group  with  a  consideraby  improved  result  from  the  point  of  view 
of  equity: 

Every  company  shall  pay  an  annual  tax  which  shall  be  based 
on  gross  earnmgs  and  which  shall  be  the  percentage  of  gross  earn- 
ings fixed  herein : 

(a)  When  it  has  no  net  earnings  or  its  net  earnings  do  not 
exceed  5  per  cent  of  its  gross  earnings  —  1  per  cent ; 
^    (b)  When  its  net  earnings  exceed  5  per  cent  of  its  gross  earn- 
ings but  do  not  exceed  10  per  cent  —  li/4  per  cent ; 

(c)  When  its  net  eaniings  exceed  10  per  cent  of  'its  gross  earn- 
ings but  do  not  exceed  15  per  cent  —  1%  per  cent ; 

(d)  When  its  net  earnings  exceed  15  per  cent  of  its  gross  earn- 
mgs but  do  not  exceed  20  per  cent  — 13^  per  cent; 

(e)  When  its  net  earnings  exceed  20  per  cent  of  'its  gross  earn- 
ings but  do  not  exceed  25  per  cent  — 2  per  cent; 

(f)  When  its  net  earnings  exceed  25  per  cent  of  its  gross  earn- 
ings but  do  not  exceed  30  per  cent  —  2i/4  per  cent ; 

(g)  When  its  net  earnings  exceed  30  per  cent  of  Us  gross  earn-' 
mgs  but  do  not  exceed  35  per  cent  —  21/^  per  cent; 

(h)  When  its  net  earnings  exceed  35  per  cent  of  its  eross  earn- 
ings but  do  not  exceed  40  per  cent  —  234  per  cent ; 

(i)  When  its  net  earnings  exceed  40  per  cent  of  its  jrross  earn- 
mgs—3  per  cent. 

Calculations  by  the  staff  of  the  Committee  indicate  that  these 
rates  will  produce  about  $350,000  less  than  the  taxes  collected 
from  public  utilities  at  present.  Railroads  as  a  group,  which 
were  found  to  be  taxed  at  a  relatively  low  rate  as  compared  with 


119 

other  groups,  would  pay  substantially  moi-e  and  all  the   other 
classes  of  public  utilities  would  pay  slightly  less. 

Interstate  apportionment.—  The  taxation  of  corporations  upon 
their  earnings  involves  the  apportionment  to  the  State  of  it* 
proper  share  of  the  earnings  of  those  coi-porations  which  are 
engaged  in  interstate  business.  This  is  required  by  common 
justice  as  w^ell  as  by  constitutional  restrictions.  There  are  various 
possible  methods  of  apportionment,  some  highly  exact  and  cor- 
respondingly complicated,  others  extremely  simple  though  at  the 
expense  of  a  certain  degree  of  arbitrariness.  Thorough  study  of 
this  subject  by  other  commissions  and  authorities*  appears  to 
have  demonstrated  that  the  very  gi-eat  advantages  of  simplicity 
may  be  obtained  without  any  serious  sacrifice  of  equity  by  the 
adoption  of  some  simple,  ar'bitrary  basis  for  each  class  of  cor- 
porations. 

For  steam  and  electric  railroads  the  most  satisfactorv  basis  is 
all-track  mileage.  A  part  of  the  total  earnings  of  each  corpora- 
tion is  apportioned  to  the  State,  the  ratio  of  such  part  to  the 
total  earnings  being  the  same  as  the  ratio  of  all-track  mileage 
within  the  State  to  total  all-track  mileage  within  and  without  the 
State.  This  is  a  fair  measure  both  of  the  property  and  of  the 
business  properly  to  be  assigned  to  the  State.  For  telegraph 
companies  and  long-distance  telephone  companies  the  best  basis 
of  apportionment  appears  to  be  wire  mileage.  For  telephone 
companies  doing  an  exchange  business,  the  number  of  trans- 
mitters (stations)  is  the  obvious  measure.  For  any  other  class 
of  corporations  it  will  not  be  difficult  to  discover  some  simple 
basis  appropriate  to  the  business  of  the  corporations  in  question. 
These  methods  have  been  used  for  years  in  a  number  of  States. 
They  have  proved  simple  and  effective  in  administration,  equi- 
table in  their  results,  and  their  constitutionality  has  not  been 
shaken,  ^ote  the  experience  of  Connecticut  in  the  taxation  of 
telephone  and  telegraph  companies,  express  companies  and  car 
companies  since  1913  and  railroads  and  street  railways  since 
1915. 


c^.^^.^V^^.  ofConn^icutSpecia  '.Commisston  on  Taxation  of  Corporations  Paving  Taxes  fo  ihe 
State,  1913;  also  F.  R  Fairchild.  "  The  Principle  of  Equity  in  the  Taxation  of  Foreign  Corpora- 
tions,      froceedmga  Second  Pan-American  Scientific  Congress,  Dec.  1915-Jan.,  1916. 


120 

By  allocating  thus  to  the  State  its  proper  share  of  earnings,  it 
becomes  possible  to  take  account  of  all  earnings,  interstate  as 
well  aa  intra-state,  and  thus  to  arrive  at  the  true  measure  of  the 
tax-paying  capacity  of  the  corporation. 

The  foregoing  discussion  of  apportionment  relates,  of  course, 
only  to  operating  earnings.* 

Fluctuation  of  revenue. —  Earnings  taxes  have  a  tendency  to 
tluctuate  according  to  the  prosperity  or  adversity  of  the  tax- 
paying  corporations.  This  is  one  of  their  merits  from  the  stand- 
jx>int  of  the  taxpayer.  Too  great  a  dependence,  however,  on  such 
taxes  might  jeopardize  the  stability  of  the  revenue  system,  upon 
which  both  State  and  localities  depend  to  such  an  extent.  The 
use  of  the  gross-net  tax  in  the  foi-m  suggested  above  will  go  far 
to  reduce  fluctuations  in  revenue  but  they  can  be  still  further 
restricted  by  resorting  to  the  method  of  averaging  the  earnings 
discussed  above. f 

The  Taxes  on  Private-Car  Companies 

A  subject  which,  while  not  of  great  importance  quantitatively, 
has  been  the  occasion  of  considerable  practical  difficulty  in  this 
State  is  the  prop^*  taxation  of  private-car  companies.  Such  com- 
panies exist  in  several  different  forms,  ownership  and  operation 
l>eing  distributed  between  organizations  in  a  variety  of  ways, 
making  it  difficult  to  draw  the  line  between  those  companies  which 
may  be  properly  classified  as  public  utilities  and  those  which  may 
not.  The  Committee  i-efrains  from  making  specific  recommenda- 
tions regarding  the  taxation  of  private-car  companies  because  it 
believes  that  the  problem  demands  more  elaborate  study  and  in- 
vestigation than  it  has  been  possible  to  devote  to  it  thus  far.  In 
general,  however,  the  Committee  l^elieves  that  such  companies  as 
are  operating  cars  between  fixed  points  for  the  accommodation  of 
the  public  are  certainly  to  be  classified  as  public  utilities  and 
suljjected  to  the  public-utility  taxes.  At  present  operating  private- 
car  companies  are  subject  to  tax  under  section  182  (capital  stock 
tax)  and  section  184  (gross  earnings  tax).  On  the  other  hand 
the  type  of  company  which  o\\tis  private  cars  but  does  not  operate 

*;C/.  supra,  p.  117. 
t  Supra,  p.  90. 


121 

them,  merely  leasing  them  to  others  for  use,  seems  to  the  Com- 
mittee to  fall  properly  within  the  class  of  corporations  subject  to 
taxation  under  section  9a,  the  income  tax  on  business  corporations, 
whenever  they  can  be  construed  to  be  ''  doing  business''  in  this 
state.  This  accords  in  general  with  present  practice,  but  there 
appears  to  be  need  for  making  the  application  of  section  9a  more 
specific  in  this  respect. 

The  real  difficulty  arises  in  connection  with  companies  which 
neither  operate  nor  have  an  office  in  this  State  but  which  own 
cars,  leased  to  others,  which  are  operated  by  lessees  within  the 
State.  SHich  companies  apparently  cannot  be  reached  under  sec- 
tion 9a  because  they  are  not  considered  to  be  "doing  business" 
^\^thin  the  State.  It  should  be  possible  to  devise  a  more  satis- 
factory plan  than  that  at  present  in  force  for  taxing  such  com- 
panies on  a  iwrtion  of  the  value  of  their  equipment  allocated  to 
this  State  on  some  equitable  basis  but  there  appears  to  be  serious 
question  as  to  whether  this  could  be  done  if  the  Committee's  rec- 
ommendation regarding  the  total  exemption  of  personal  prop- 
erty is  adopted.*  The  yield  from  such  a  tax  would  be  insignificant 
in  any  case. 

The  Franchise  Tax  on  Income  of  Mercantile  and  Manu- 
facturing Corporations 

^  The  rate  of  the  tax.—  The  results  of  the  statistical  investi ja- 
tionf  plainly  show  that  manufacturing  and  mercantile  corpora- 
tions are  in  a  relatively  favorable  position  as  compared  with  fin- 
ancial institutions  and  public  utilities.  The  equalization  of  the 
tax  burden  involves  some  relief  to  real  estate  and  to  some  classes 
of  public  utilities.  The  Committee  believes  that  the  burdens  now 
resting  on  these  interests  should  be  equalized  and  therefore  recom- 
mends an  increase  in  the  rate  of  the  franchise  tax  applied  to  the 
7iet  income  of  business  corporations  (Section  9a  of  the  tax  lavj) 
from  four  and  one-half  to  six  per  cent. 

As  has  already  been  explained,  it  is  quite  possible  that  the 
Stat©  will  be  unable  to  tax  the  income  of  banks  at  a  higher  rate 
than  that  applied  to  the  income  of  these  mercantile  and  mannfac- 

*  Cf.  supra,  p.  46. 

t  Cf.  supra,  pp.  82  et  seq.,  102  et  seq;  infra,  pp.  183  et  seq.,  196  et  seq. 


122 


123 


turing  companies.  This  will  certainly  be  tru^  if  the  bankers  have 
their  way  regarding  the  form  of  the  amendment  to  section  5219 
of  the  United  States  Revised  Statutes  *  In  this  case  the  failure 
to  increase  the  rate  of  the  Emerson  Act  would  also  result  in  re- 
lieving the  banks  of  a  substantial  portion  of  the  taxes  which  they 
at  present  pay  — taxes  which  are  fair  in  amount  and  which 
occasion  no  complaint.  It  should  be  borne  in  mind  also  that  a 
reduction  in  the  rate  of  the  real  estate  tax  which  would  be  made 
possible  by  the  increased  rate  of  the  corporation  income  tax 
would  be  in  itself  a  relief  to  businesses  owning  real  estate. 

The  form  of  the  tax.— K'o  fundamental  change  seems  desir- 
able at  this  time  in  the  form  of  the  tax  on  the  income  of  mer- 
cantile and  manufacturing  corporations.  If  the  implications  of 
one  of  the  recent  decisions  of  the  SHipreme  Court  of  the  United 
Statesf  are  carried  out  in  later  decisions  the  State  may  find  the 
"  franchise "  character  of  the  tax  an  insufficient  justification  for 
the  present  practice  of  taxing  such  items  as  interest  on  federal 
securities,  but  this  situation  has  not  yet  become  urgent.  Several 
relatively  slight  modifications  appear  desiraWe  at  this  time. 

Deduction  of  net  losses  of  other  taxable  years.— At  present 
the  law  (.Section  208-3)  specifically  forbids  the  deduction  of  "  any 
losses  sustained  by  the  corporation  in  other  fiscal  years  whether 
deducted  by  the  government  of  the  United  States  or  not.''  In 
the  new  Revenue  Act  of  1921  the  federal  government  takes  a  long 
step  in  the  direction  of  wiping  out  the  hard  and  fast  line  which 
has  in  the  past  been  drawn  between  accounting  periods.  ^  Within 
certain  limitations,  the  new  provision  permits  net  losses  incurred 
in  one  year  to  be  offset  against  profits  realized  in  succeeding  years. 
This  seems  to  the  Committee  to  be  an  eminently  fair  provision  and 
one  which  should  be  carried  over  into  the  State  procedure.  It 
recommends  that  the  net  lo^s  ^provision  of  the  Federal  Revenue 
Act  of  1921  he  recognized  in  arriving  at  the  net  income  of  cor- 
porations  taxed  under  Section  da  of  the  State  Tax  Law.X 

The  apportionment  of  interstate  income.—  The  present  rule 
of  apportionment  for  dividing  the  net  income  of  corporations 

t  Giikspi^v.' Oklahoma,  U.  S,  Supreme  Court.  Jan.  3D.  1922. 
i  Cf.  supra,  p.  76. 


/ 


doing  business  in  other  states  as  well  as  in  this  State  has  been  the 
object  of  sharp  criticism,  much  of  which,  in  the  opinion  of  the 
Committee,  is  justified.  The  rule,  now  in  use,  divides  the  income 
on  the  basis  of  the  relationship  of  the  value  of  the  corporation's 
property  in  ISTew  York  to  the  value  of  its  property  everywhere, 
the  precise  character  of  the  property  entering  into  the  formula 
being  carefully  defined. 

The  proper  allocation  of  income  from  interstate  income  is  one 
of  the  most  difficult  and  complicated  problems  in  the  whole  field 
of  State  income  taxation.  It  is,  moreover,  highly  important  to 
the  corporations  that  the  allocation  mles  of  the  various  states 
imposing  income  taxes  be  consistent  and  uniform  in  order  that, 
in  the  aggi-egate,  not  more  than  100  per  cent  of  their  income  be 
subjected  to  taxation.  It  is  important  that  the  rules  be  just  and 
equitable  in  order  that  not  more  of  their  income  be  taxed  by  a 
state  which  has  high  income  tax  rates  than  is  properly  attributable 
to  that  state.  As  the  situation  now  stands  there  is  a  great  lack  of 
uniformity  among  the  rules  of  the  various  states  and  an  obvious 
lack  of  equity.  Thus,  under  the  present  rules,  a  corporation 
manufacturing  an  article  in  Connecticut  and  selling  it  in  I^orth 
Dakota  would  be  taxed  upon  its  entire  net  income  in  both  states, 
Connecticut  taxing  it  all  on  the  ground  that  the  tnie  source  of  the 
income  is  the  factory  and  Xorth  Dakota  taxing  it  all  on  the  theory 
that  the  place  of  sale  determines  the  true  source. 

As  a  practical  matter,  it  is,  of  course,  quite  out  of  the  question 
to  attempt  in  individual  cases  to  trace  resix)nsibility  for  profits  to 
particular  elements  of  a  business  organization  or  to  the  activities 
of  particular  agents  of  the  business  —  to  the  superior  quality  of 
the  equipment  in  the  factory,  for  example,  or  to  the  cleverness 
of  a  particular  purchasing  agent  or  sales  manager.  Business 
profits  cannot  ordinarily  be  accurately  traced  back  to  their  precise 
sources  in  the  organization.  On  the  whole  the  sound  view  to 
take  is  that  the  net  income  is  the  result  of  the  functioning  of  the 
entire  organization.  The  selection  of  merely  one  element  such 
as  property  or  sales  as  a  basis  for  apportioning  net  income  is 
inadequate  because  it  involves  the  assumption  that  this  element 
alone  is  responsible  for  the  production  of  net  income.     What  is 


1  \ 


1  '! 


124 

really  needed  is  a  comprehensive  formula  which  includes  all  of 
the  elements  which  contribute  to  the  production  of  the  income. 

Although  it  is  obvious  that  this  is  a  problem  which  is  not 
susceptible  of  a  precise  solution,  the  National  Tax  Association  has 
considered  it  of  sufficient  importance  to  justify  the  appointment 
of  a  special  committee.  This  committee  has  not  yet  completed  its 
deliberations  but  its  conclusions  on  the  main  issues  involved  con- 
stitute a  most  important  contribution  toward  the  solution  of  the 
difficulty.  It  offers  a  plan  of  apportionment  and  a  formula  which 
in  the  course  of  time  may  be  expected  to  become  standard  among 
the  states  which  impose  income  taxes  on  business  profits.  This 
proposal  has  'been  stated  by  the  chairman  of  the  committee*  in 
the  following  language: 

First.  Specifically  allocate  any  and  all  income  received  from 
intangiWe  properties  owned  by  the  taxpayer.  (It  is  thought  that 
in  most  cases  income  of  this  character  lends  itself  easily  to  specilic 
allocation). 

Second.  When  desired  by  the  taxpayer  and  approved  by  the  tax 
commission  of  the  interested  state,  to  allocate  specifically  the 
profits  arising  from  business  transacted  in  the  state  concerned. 
It  is  not  uncommon  to  find,  under  present-day  conditions,  that 
taxpayers  engaged  in  business  in  more  than  one  state  so  coiid:»ct 
their  books  and  records  as  to  reflect  accurately  profits  actua;lly 
derived  from  business  operations  conducted  at  their  various 
branches,  and,  if  the  taxpayer  desires  and  the  commission  approves 
specific  allocation  under  such  circumstances,  it  is  thought  iu  all 
probability  more  accurate  results  will  be  obtained  than  through 
any  fixed  formula  which  may  be  adopted. 

Third.  In  the  event  that  the  second  option  is  not  practical,  then 
to  apportion  the  income  as  follows: 

First,  divide  the  remaining  income  in  two  equal  parts  and  appor- 
tion the  one-half  thereof  in  accordance  with  physical  properties. 
You  will  note  that  this  excludes  intangibles,  including  bills  and 
accounts  receivable. 

Xext,  apportion  the  second  half  of  the  remaining  income  ba^ed 
on   business   activities.      The   cycle   in   any  business  measuring 

*  Mr.  C.  S.  Lamb,  of  Pittsburgh,  in  a  letter  dated  Oct.  13.  1921. 


"V 


I    I 


V 


125 

its  business  activity  consists  first  of  purchase  j  second,  wages, 
galaxies,  etc.  paid  in  work  upon  or  development  of  goods  so  pur- 
chased; third,  sales. 

We,  therefore,  suggest  that  the  business  activities  be  measured 
by  the  sum  of  purchase,  pay  roll  and  sales,  using,  of  course,  in 
both  cases  as  the  numerator  that  which  applies  to  the  interested 
state,  and  as  the  denominator  the  total  of  the  taxpayer  wherever 
it  may  occur.  There  was  objection  in  the  committee  to  the  add- 
ing together  of  the  property  and  of  the  sales  or  any  other  factors 
representing  business  activities,  as  by  so  doing  it  was  thought  that 
too  much  weight  would  be  thrown  either  to  the  one  or  to  the  other, 
depending  upon  whether  the  business  transacted  had  a  quick  or  a 
slow  turnover.  It  was  further  felt  that  this  formula  has  the 
advantage  of  presenting  a  fair  division  between  manufacture  and 
sales  when  both  are  conducted  by  the  same  company  and  that  the 
fairness  of  such  an  arrangement  would  appeal  to  state  l^islatures 
and  those  interested  in  the  tax  problem, — in  other  words,  that 
there  is  a  fairly  good,  strong  point  for  the  adoption  of  this  formula 
by  states  that  may  hereafter  consider  the  adoption  of  a  state 

income  tax. 

Fourth.  Should  a  taxpayer  feel  that  the  application  of  the 
formula  as  set  forth  under  "  third  "  unfairly  burdens  him  with 
taxation,  upon  application  to  the  tax  commission  and  a  proper 
showing  of  such  facts,  the  tax  commission  may  make  apportion- 
ment on  any  other  basis  that  may  seem  to  him  fair  and  reasonable, 
with  the  proviso,  however,  that  in  no  event  shall  the  amount  so 
determined  be  in  excess  of  the  amount  developed  by  the  formula. 

Fifth.  That  the  right  of  appeal,  to  review  de  novo,  by  the 
courts  shall  not  be  denied  the  taxpayer. 

It  has  been  necessary  for  the  committee  to  consider  this 
problem  of  apportionment  in  connection  with  the  proposed  tax  on 
the  income  of  unincorporated  businesses  as  well  as  in  connection 
with  the  franchise  tax  on  corporate  income.  It  seems  desirable 
that  the  apportionment  formula  be  the  same  for  both  taxes.  The 
committee  later  urges*  that  the  plan  as  outlined  above  be  adopted 
for  the  unincorporated  business  tax  and  it  here  recommends  thai 

•  CJ.  infra,  p.  129 . 


126 


127 


i 


the  present  apportionment  formula  in  section  9a  of  the  tax  law  he 
broadened  so  as  to  take  into  account  the  elements  included  in  the 
plan  suggested  hy  the  committee  of  the  National  Tax  Association, 

The  Taxes  on  Unincorporated  Business 

The  present  situation. —  When  the  Emei-son  Act  was  passed 
in  1917,  imposing  an  income  tax  on  business  profits,  its  scope 
was  restricted  to  corporations  doing  business  in  the  State.  Business 
conducted  by  single  proprietors  or  by  partnerships  continued  to 
be  taxed  under  the  old  general  property  tax.  In  other  words,  all 
businesses  paid  taxes  on  their  real  estate,  but,  whereas  corporations 
paid  a  tax  on  their  net  income,  unincorporated  businesses  paid  a 
tax  on  their  stock-in-trade.  The  personal  income  tax,  passed  in 
1919,  included  within  its  scope  the  dividends  of  corporations,  even 
though  such  corporations  were  taxed  on  their  income  by  the  State. 
This  clearly  established  the  Emerson  Act  as  a  purely  business 
tax.  Profits  of  individuals  in  business  by  themselves  or  as 
partners  were  taxed  merely  at  the  personal  income  tax  rates. 
Granting  that  real  estate  taxes  should  be  placed  in  a  separate 
category,*  the  comparison  then  lies  between  the  4^2  per  cent 
tax  on  the  net  income  of  corporations  subject  to  tbe  revised 
Emerson  Act  on  the  one  hand  and  the  tax  on  stock-in-trade  of 
unincorporated  businesses  on  the  other. 

The  lack  of  correlation  between  stock  owned  and  profits  earned 
is  fully  appreciated  by  everyone  familiar  with  the  conditions  of 
modem  business  so  that  the  theoretical  inadequacy  of  a  tax  on 
stock-in-trade  as  a  measure  of  the  tax-paying  ability  of  business 
would  be  granted  without  argument.  But  in  addition,  according 
to  the  information  received  by  the  Committee,  the  tax  on  stock- 
in-trade  is  wretchedly  administered  with  tbe  result  that  it  is  almost 
a  dead  letter  on  the  staitute  book.  Consequently  unincorporated 
business  as  a  whole  escapes  with  practically  no  business  tax 
whatever. 

Effect  of  the  federal  taxes  on  business  profits. —  The  Com- 
mittee is  fully  aware  that  the  present  federal  income  tax  operates 
in  a  capricious  and  inequitable  manner  as  between  the  various 
types   of  business   organization   and  that   this   complicates  the 

*  Cf.  supra,  pp.  56-57. 


IState's  problem.    After  Januaiy  1,  11)22,  the  federal  excess  profits 
tax  no  longer  appxics  to  the  income  of  corporations.     Alter  that 
date  the  federal  income  tax  on  corporations  becomes  121/2  per 
cent  on  their  total  annual  profits  while  corporate  dividends,  if 
and  when  distributed,   are  exempt  from  the  normal  tax,   of  4: 
and  8  per  cent,  which  individuals  are  called  upon  to  pay  as  a 
part  of  their  contribution.     This  dilterence  in  rates  between  the 
121/2  per  cent  corporation  tax  and  the  4  and  8  per  cent  individual 
normal  rate  is  supposed  to  be  roughJy  equivalent  to  the  advantage 
the  corporation  enjoys  of  postponing  indefinitely  the  distribution 
of  its  profits  in  the  form  of  dividends,  thus  postponing  the  taxa- 
tion of  these  profits  at  the  high  individual  surtax  rates.     The 
equivalence,  however,  is  exceedingly  rough  and  the  point  has  been 
urged  before  the  Committee  that  in  spite  of  this  difi:erence  in  rate, 
the  federal  law   really  puts  the  unincorporated  business   at   a 
disadvantage  as  compared  with  the  business  operating  as  a  corpora- 
tion, thus  making  it  unwise  for  the  state  to  place  further  burdens 
on  unincorporated  business.    With  respect  to  this  the  Committee 
feels,  first,  that  the  case  has  not  been  completely  proved  —  that 
in  manv  cases  the  federal  law  discriminates  against  the  corpora- 
tion  rather  than  in  favor  of  it.    But  more  important  than  this,  the 
Committee   does  not   see   the  force   of  the  contention  that  the 
failure  of  the  federal  government  to  work  out  a  satisfactory  solu- 
tion of  its  problem  precludes  this  State  from  setting  its  own  house 
in  order.     We  are  convinced  that  we  shouM  make  our  State 
system  consistent  and  equitable  as  an  independent  system  and  not 
make  it  a  mere  appendage  to  an  imperfect  federal  system,  designed 
to  supplement  it  and  to  relieve  its  inequalities.     We  believe  that 
an  unincorporated  business   tax  is  needed   in  this   State  as  a 
fundamental  part  of  the  tax  system. 

Tax  on  the  income  of  unincorporated  business  recommended. 
—  The  Committee  recommends  that  a  reasonable  tax  he  imposed 
upon  the  net  income  of  unincorporated  businesses.  We  find  that 
there  is  a  wide-spread  sentiment  in  favor  of  making  the  business 
income  tax  as  broad  as  business  itself,  instead  of  restricting  it  to 
corporations.  Among  the  incorporated  banks,  for  example,  there  is 
complaint  because  of  the  comparatively  inadequate  taxation  of  the 
great  private  bankers  and  financial   institutions.     Incorporated 


f: 


',» 


Ma 


128 

department  stores  protest  that  they  are  unequally  taxed  as  com- 
pai-ed  with  merchants  ditferently  organized.  It  would  seem  to  be 
self-evident  that  the  tax  burden  on  a  business  should  not  be 
aiaterially  larger  or  smaller  merely  because  of  a  difference  in  its 
form  of  organization. 

The  adoption  of  the  Committee's  recommendation  regarding  the 
exemption  of  personal  property,"^"  which  now  includes  the  stock-in- 
ti'ade  of  unincorporated  companies,  would  add  force  to  the  pro- 
posal here  made  but  if  the  Legislature  should  decide  not  to  relieve 
all  personal  property  from  taxation,  the  adoption  of  the  proposed 
income  tax  on  unincorporated  business  should  carry  with  it,  of 
course,  exemption  of  the  stock-in-trade  of  the  businesses  affected. 
Form   of    the   proposed   tax    on   unincorporated   business. — 
This  proposed  tax  on  the  profits  of  unincorporated  business  should 
apply  to  all  profits  arising  from  such  business  transacted  within 
the  State.    It  should  be  a  business  profits  tax  rather  than  a  pro- 
fessional  earnings  tax.    The  general  problem  of  interstate  appor- 
tionment has  been  discussed'  above.f     The  apportionment  plan 
suggested  by  the  committee  of  the  :N^ational   Tax  Association 
should  be  followed.     There  should  be  an  initial  exemption  of 
i$5,000.     The  definition  of  income  subject  to  tax  should  follow 
in  general,  that  in  the  present  personal  income  tax  law.  Dividends 
should  be  exempt  on  the  theory  that,  in  so  far  as  they  arise  from 
business  transacted  in  jSTew  York  they  have  already  been  reached 
\mdev  the  corporation  income  tax.     The  tax  can  best  be  adminis- 
tered in  connection  with  the  personal  income  tax.    In  view  of  the 
imposition  of  this  new  tax,  the  scope  of  the  personal  income  tax 
should  be  modified  so  as  to  exclude  the  profits  of  unincorporated 
business  carried  on  in  this  State  accruing  to  the  credit  of  non- 
residents.:]: 

Rate  of  the  proposed  tax  on  unincorporated  business.-r- The 
rate  of  the  tax  is  determined  in  large  measure  by  the  decision 
regarding  the  rate  to  be  imposed  on  business  corporations.  We 
recommend  that  the  rate  on  unincorporated  business  be  slightly 
lower  than  the  rate  imposed  by  section  9a  on  the  income  of  mer- 
cantile and  manufacturing  corporations.    We  feel  that  it  should 

*  Cf.  stipra,  p.  45  «rf  seq. 
t  Supra,  p,  122  et  seq. 
t  Cf.  supra,  p.  75. 


V 


129 

be  lower  because  of  the  fact  that  the  profits  of  an  unincorporated 
business  become  immediately  taxable  to  their  full  amount  under 
the  personal  income  tax  whereas  the  profits  of  a  corporation  become 
subject  to  these  personal  income  tax  rates  only  "  if  and  when  " 
distributed  as  dividends.*     The  resulting  tax  advantage  to  the 
corporation  form  is  substantial  and  furnishes  a  sound  basis  for 
a  discrimination  in  the  rate.    It  is  impossible  to  determine  statis- 
tically the  precise  value  of  these  advantages.     Consequently,  the 
differential  in  the  rates  must  at  best  be  approximate.     We  sug- 
gest that  for  the  present  the  rate  on  unincorporated  business  profits 
be  made  one  per  cent  lower  than  the  corporation  income  tax  rate. 
If  the  present  corporation  rate  of  41/2  per  cent  is  increased  to  6 
per  cent,  the  rate  on  the  profits  of  the  proposed  tax  on  unincor- 
porated business  would  then  be  fixed  at  5  per  cent.    In  case  future 
refinements   of   accounting  procedure    and    administrative    skill 
make  it  practicable  to  reflect  in  personal  income  the  value  of 
accumulations  in  corporate  surplus,  this  differential  in  the  rate 
can  be  abandoned  or,  if  experience  indicates  that  one  per  cent 
unduly  favors  one  form  of  organization,  the  rate  can  be  easily 

modified. 

Estimate  of  yield.—  Data  supplied  by  the  Income  Tax  Bureau 
of  the  State  Tax  Commission  indicate  that  a  Tax  on  all  profits 
from  unincorporated  business,  allowing  the  deduction  of  dividends 
and  proprietors'  salaries  and  with  an  initial  exemption  of  five 
thousand  dollars  to  each  business,  the  exemption  recommended 
abovef  would  yield  about  $1,750,000  for  each  1  per  cent  of  tax. 

Division  of  yield.— Pending  the  development  of  a  plan  for  a 
general  Subvention  Fund,^  the  Committee  recommends  that  the 
yield  be  divided  between  the  State  and  the  localities  in  the  same 
munner  as  the  proceeds  of  the  personal  income  tax  are  divided. 

The  Taxes  on  Motor  Transportation 

The  problem  of  motor-vehicle  taxation  is  a  new  one  in  the 
field  of  public  finance  and  the  principles  which  should  govern 
it  and  the  form  which  the  taxes  should  take  are  still  questions  of 

*  Cf.  supra,  p.  126  et  seq.. 
t  Cf.  supra,  p.  128. 
t  Cf.  infra,  p.  168. 


130 


131 


\ 


debate.  There  is  little  uniformity  in  the  legislation  of  the  various 
states.  Everywhere  the  problem  is  in  a  state  of  flux  and  the 
laws  admittedly  tentative  and  experimental.  However,  the 
phenomenal  increase  in  the  use  of  motor-vehicles  and  the  demand 
for  improved  highways  which  has  accompanied  this  development 
has  made  the  problem  a  very  important  one  both  from  the  point 
of  view  of  the  public  treasury  and  from  the  point  of  view  of 
the  users  of  the  roads. 

What  taxes  should  be  paid  by  users  of  the  road? — Thus  far 
not  enough  attention  has  been  devoted  to  the  fundamental  aspects 
of  the  problem  to  make  it  possible  for  minds  to  come  to  agreement 
as  to  what  is  equitable  in  motor-vehicle  taxation.  Indeed,  there 
is  not  even  a  clear  understanding  as  to  the  precise  grounds  of 
disagreement.  The  process  of  motorization  has  proceeded  more 
rapidly  than  the  theory  of  taxation  in  this  field  and  the  practice 
of  motor-vehicle  taxation  has  run  beyond  the  technical  knowledge 
necessary  to  the  formulation  of  a  form  of  tax  which  would  be 
scientific  and  generally  acceptable. 

As  it  arises  in  this  State,  the  fundamental  question  in  its 
simplest  form  is  this :  What  part  of  the  cost  of  providing  streets 
and  roads  shall  be  paid  by  users  of  the  road?  It  is  conceivable 
that  motor-vehicles  might  be  utilized  as  an  evidence  of  ability 
to  contribute  to  the  miscellaneous  general  costs  of  government 
and,  in  fact,  they  are  often  so  used  in  those  states  where  the 
general-property  tax  is  still  in  force.  In  this  State,  however, 
where  personal  property  has  been  virtually  abandoned  as  a 
measure  of  taxpaying  ability,  this  basis  is  not  available  as  a 
justification  of  the  charges  on  motor  vehicles.  Here  the  fees  are 
la  special  charge  on  users  of  the  road  and  the  question  of  the 
maximum  amount  of  such  fees  is  really  a  question  as  to  what 
particular  governmental  costs  may  properly  be  chargeable  to 
these  users  of  the  roads. 

To  the  extent,  therefore,  that  there  are  other  users  of  the  road 
ibeside  motor  vehicles,  the  fees  are  illogical  in  being  confined  to 
motor  vehicles,  except  in  so  far  as  the  motor  vehicles  involve 
special  governmental  costs  not  occasioned  by  the  use  of  the  roads 
by  other  vehicles.  An  example  of  such  a  special  governmental 
cost  would  be  the  provision  for  traffic  regulation  and  speed  control 


i. 


■ 


made  necessary  by  the  motor  vehicle.  However,  the  gi*eat  cost 
which  has  accompanied  the  development  has  been  the  construction 
and  maintenance  of  a  better  type  of  road  than  was  previously 
demanded  and  the  problem  thus  resolves  itself  largely  into  the 
question  as  to  the  relationship  between  revenues  from  the  taxation 
of  motor  transportation  and  such  additional  road  costs. 

The  practice  of  charging  road  costs  to  the  users  of  the  roads  is 
nothing  new  or  novel.  The  toll-road  is  an  institution  whose  dis- 
appearance is  within  the  memory  of  the  present  generation.  Such 
roads  were  constructed  whenever  funds  from  other  sources  were 
unavailable  and  the  demands  from  the  users  of  the  roads  seemed 
to  justify  the  expenditure.  They  were  taken  over  by  the  govern- 
ment and  made  a  general  public  charge  whenever  a  community 
grew  to  appreciate  sufficiently  the  value  of  the  service  rendered 
by  them.  The  toll  device  was,  in  fact,  an  awkward  method  of 
administering  what  was  virtually  a  tax  on  the  user  of  the  road. 
It  had  a  repressive  effect,  often  preventing  the  road  facilities 
from  being  put  to  their  greatest  use,  but  it  was,  doubtless,  neces- 
sitated by  the  physical  conditions  —  the  scattered  and  fragmen- 
tary character  of  the  road  system.  In  any  case  the  underlying 
principle  was  sound  —  that,  in  cases  where  the  user  of  the  road 
demanded  facilities  which  the  government  cculd  not  afford  or  of 
whose  utility  and  advantages  the  government  was  not  convinced, 
the  cost  of  providing  those  facilities  was  placed  directly  upon 
the  users  themselves.  Under  the  conditions  it  was  an  entirelv 
justifiable  application  of  the  benefit  theory  of  taxation.  It  is 
quite  possible  that  financial  necessity  will  force  a  wider  applica- 
tion of  this  theory  of  apportioning  charges  in  the  years  which 
lie  immediately  ahead.  Taxation  of  the  user  of  the  roads  is  a 
field  in  which  a  wide  development  of  this  character  is  very  likely 
to  take  place. 

The  motor  vehicle  has  had  a  tremendous  effect  upon  the  demand 
for  road  facilities.  With  an  automobile  or  a  motor  truck,  the  pos- 
sibilities of  the  use  of  the  roads  for  pleasure  and  business  are  verv 

ft/ 

different  from  what  they  were  with  a  horse  and  a  buggy  or  a 
wagon.  But  those  possibilities  are  greatly  affected  by  the  char- 
acter of  the  road,  as  to  whether  it  is  level,  smooth  and  straight 
rather  than  hilly,  rough  and  crooked.    It  is  true,  of  course,  that  a 


132 

good  road  increases  the  possibilities  in  the  use  of  the  horse  but 
the  point  is  that  it  does  not  increase  those  possibilities  in  anything 
like  the  measure  by  which  it  increases  the  possibilities  in  the  use 
of  the  motor  vehicle.  An  automobile  on  a  good  road  may  easily 
travel  250  miles  between  sunrise  and  sunset,  and  perhaps  only  50 
miles  on  a  really  bad  road.  The  improved  road  holds  no  such 
possibility  of  increase  in  the  day's  journey  of  the  horse-drawn 
vehicle.  This  is,  in  our  opinion,  the  real  explanation  of  the  con- 
nection between  the  development  of  the  motor  vehicle  and  the 
growth  of  the  movement  for  good  roads.  There  was  no  effective 
demand  for  good  roads  so  long  as  they  offered  only  the  increase 
in  advantages  available  with  a  horse-drawn  vehicle.  Good  roads 
had  to  wait  until  a  'body  of  automobile  users  arose  who  realized  the 
very  greatly  increased  possibilities  of  the  hard,  smooth  roads  with 
their  new  machines. 

The  fact  that  the  disposition  to  charge  at  least  a  portion  of  the 
cost  of  the  improved  roads  to  the  motor- vehicle  is  country-wide  in 
its  scope,  is  evidence  of  the  soundness  of  the  above  analysis.  The 
motor  vehicle  is  adopted  as  the  tax  base  primarily  as  a  means  of 
reaching  the  user  of  the  road  and  with  one  accord  the  states  turn 
to  these  users  with  the  demand  that  if  they  really  want  the  good 
roads,  they,  who  use  them,  must  pay  for  them  in  whole  or  in  part. 
The  question  then  immediately  arises  as  to  whether  the  whole  cost 
or  only  a  part,  and,  if  only  a  part,  precisely  what  part,  of  the  costs 
should  be  borne  by  the  users. 

Some  of  the  enthusiasts  for  heavy  motor  fees  se^m  to  forget  that 
roads  and  streets  were  considered  necessary  before  the  advent  of 
the  automo'bile  and  the  truck  and  that  the  public  interest  in  these 
roads  and  streets  was  often  considered  sufficient  to  justify  their 
construction  and  maintenance  as  a  general  public  charge.  In  the 
case  of  city  streets,  of  course,  it  has  been  a  general  practice  to 
charge  a  portion  of  these  costs  to  the  land  immediately  served,  in 
the  form  of  special  assessments.  Certainly  there  is  a  certain  ele- 
ment of  general  public  interest  in  almost  every  road,  whether  it 
be  a  back  alley  in  a  remote  suburb  or  a  motor  speedway  stretching 
across  the  State,  which  might  form  a  sound  basis  for  charging 
a  part  of  the  cost  to  general  tax  funds. 

On  the  other  hand,  some  of  the  representatives  of  the  motor- 


kL 


133 

vehicle  interests  go  to  the  other  extreme,  asserting  that  the  public 
builds  roads  for  itself,  free  for  all  to  use  as  they  choose,  and 
that  it  is  unfair  to  charge  any  part  of  the  cost  to  any  particular 
group  of  users. 

It  seems  to  the  Committee  that  the  true  view  is  one  which  lies 
between  these  extremes.  That  there  is  a  general  public  interest 
in  the  streets  and  highways  is  true.  But  it  is  equally  tnie  that, 
when  these  streets  and  highways  cost  more  than  they  otherwise 
would  because  of  the  necessity  of  supplying  accommodations  to  a 
particular  group  of  users,  such  additional  cost  may  be  properly 
chargeable  to  those  particular  groups.  The  problem  is  to  draw  the 
line.  Once  drawn  it  determines  the  maximum  amount  which  may 
be  equitably  assessed  against  the  user,  under  the  revenue  system 
as  it  now  stands  in  this  State.  Such  a  division  line  would,  how- 
ever, serve  to  remove  the  discussion  of  motor-transportation  tax- 
ation to  a  new  plane  where  the  criteria  of  fairness  would  be  some- 
thing more  dependable  than  mere  assertion.  It  might  bring  home 
to  the  people  the  true  costs  involved  in  the  present  elaborate  plans 
for  road  construction  and  make  possible  a  more  intelligent  deci- 
sion as  to  the  desirability  of  such  expenditures.  In  such  intelli- 
gent comparisons  of  costs  and  advantages  lies  the  only  possible 
solution  of  the  financial  problem  which  the  State  is  facing.  With- 
out them,  road-building  may  possibly  play  the  role  in  State  bank- 
ruptcy which  was  taken  by  internal  improvements  in  so  many 
states  a  century  ago. 

In  cases  Avhere  the  roads  are  used  for  business,  as,  for  example, 
in  the  case  of  a  motor  truck  hauling  eggs  from  up-State  to  New 
York  City,  the  term  "user  of  the  road  "  must  be  understood  to  lie 
the  person  for  whom  the  sennce  is  rendered.  The  purchasei^s  of 
the  pgirs  in  a  New  York  City  grocery  in  a  very  real  sense  employ 
the  truck  to  bring  them  the  eggs.  A  charge  on  the  user  of  the 
road  would  under  the  present  system  be  imposed,  of  course,  upon 
the  truck  but  it  will  appear  as  a  business  expense  of  the  truck 
owner  who  must  pass  it  on  in  higher  prices  to  the  consumer  of  the 
eggs.  These  facts  have  been  seized  upon  by  some  of  the  repre- 
sentatives of  the  trucking  interests  as  an  argument  for  opposing 
special  charges  on  trucks  on  the  ground  that  "  the  public  builds 
the  roads  and  the  public  eats  the  eggs ;  "  that  the  public  derives  a 


134 


135 


h 


ti 


direct  benefit  from  the  transportation  over  the  roads  it  owns,  the 
truck  being  the  mere  agent  or  servant  of  the  public.  This  posi- 
tion, however,  overlooks  this  important  consideration,  that  not 
all  eggs  are  brought  to  New  York  City  by  truck.  Many  are 
brought  by  the  railroads.  If  the  true  costs  of  the  truck-borne  egg, 
including  the  cost  of  supplying  any  additional  road  facilities  in- 
volved in  the  use  of  the  truck,  is  not  charged  to  the  buyer  of  that 
egg,  the  egg  carried  by  the  railroad  is  discriminated  against,  for 
it  must  certainly  be  sold  at  a  price  which  covers  the  entire  cost  of 
its  transportation.  'Not  does  the  reply  that  the  railway  is  a  mon- 
opoly, whereas  the  trucking  business  is  not,  meet  the  point,  for  a 
railroad  under  regulated  rates  is  not  permitted  to  exercise  the 
monopolistic  privilege  of  price  control.  Its  rates  are  regulated 
on  the  principle  of  a  "  fair  return."  The  conclusion  is  that  only 
by  charging  to  the  user  of  the  road  the  community  costs  involved 
in  supplying  him  the  additional  road  facilities  required  by  him  in 
his  use  of  the  roads  can  the  motor-truck  competition  with  the 
railroad  be  placed  on  a  basis  which  will  insure  an  economically 
sound  decision  in  the  struggle  between  the  motor-truck  and  the 
railroad.  This  is  the  only  way  to  keep  the  accounts  straight,*  so 
that  an  industry  whose  proper  development  means  so  much  to  the 
solution  of  the  transportation  problem  may  be  neither  repressed 
or  unconsciouslv  subsidized. 

The  important  results  which  might  follow  the  statistical  analy- 
sis of  road  costs  suggested  above  would  justify  considerable  effort 
to  carry  it  through  but  it  is  a  task  which  involves  resources  l>c- 
yond  those  available  to  this  Committee.  Indeed  with  the  present 
differences  of  opinion  and  lack  of  knowledge  regarding  the  engi- 
neering aspects  of  the  problem  it  might  prove  impossible  to  carry 
through  the  analysis  in  a  manner  which  would  yield  trustworthy 
results.  It  will  be  of  interest,  however,  to  bear  this  general  analy- 
sis in  mind  when  considering  such  general  facts  regarding  road 
costs  and  motor  vehicle  revenues  as  are  readilv  available. 

Motor  traffic  and  road  costs. —  The  essential  connection 
between  the  gi'owth  of  the  good-roads  movement  and  the  develop- 
ment of  the  use  of  motor  vehicles  has  already  been  pointed  out.f 

*  The  pub.io  utilities  contend,  and  with  considerable  force  in  the  opinion  of  the  Committee, 
that  in  all  justice  to  them,  truck  companies  maintaining  a  freight  service  should  be  classed  as 
public  utilities  and  subjected  to  the  various  special  taxes  which  utilities  must  pay. 

t  Supra,  p,  132. 


'.  I  r 


The  output  of  motdr  vehicles  in  the  United  Spates  for  the  year 
1899  was  3,700.  It  first  exceeded  one  million  in  1916,  and  ini 
1920  the  output  was  two  and  one-quarter  millions.  The  number 
of  motor  trucks  is  still  relatively  small,  being  less  than  15  per 
cent  of  the  total  output  in  1920,  but  from  the  point  of  view  of 
wear  on  the  highways  motor  trucks  are  of  more  importance  than 
passenger  cars.  More  than  that,  the  rate  of  increase  of  motor 
trucks  is  greater  than  the  rate  of  increase  of  passenger  cars.* 
There  appears  to  have  been  an  overproduction  of  passenger  cars 
in  the  last  few  years,  and  while  the  number  of  such  cars  operated 
will  continue  to  increase,  the  future  rate  of  increase  will  probably 
diminish.  There  is  not  the  same  degree  of  overproduction  in  the 
truck  industry,  and  while  the  rate  of  increase  may  be  less  hence- 
forth the  absolute  increase  promises  to  be  large,  f 

The  development  of  improved  highway  systems  is  reflected  in 
both  public  debts  and  expenditures.  The  total  of  all  State  debts 
for  highway  purposes  in  1899  was  about  three  and  one-half 
million  dollars,  or  between  one  and  two  per  cent  of  all  State  debts.J 
In  1919  the  State  highway  debt  had  groAvn  to  more  than  one  hun- 
dred and  forty-three  millions,  or  more  than  twenty-one  per  cent 
of  State  debts  for  all  purposes.  This  is  only  one  indication  of  the 
incresaing  expenditure  for  highways.  In  addition  the  states  have 
appropriated  large  amounts  of  current  revenues  for  highway 
improvement,  and  the  local  divisions  have  in  many  cases  exceeded 
the  states  in  the  amount  spent  for  this  purpose.  Moreover,  the 
large  number  of  projects  under  contemplation  by  the  highway 
departments  at  present  indicate  that  such  expenditures  have  only 
begun. 

The  number  of  motor  vehicles  registered  in  New  York  in  1920 
was  670,290  or  7.3  per  cent  of  total!  registrations  in  the  United 
States.  This  represents  an  increase  of  18  per  cent  over  1919,  and 
263  per  cent  over  1915.  The  number  of  motor  trucks  registered 
in  1920  was  148,873.    This  is  a  larger  number  than  is  registered 

♦  The  increase  in  annual  production  of  passenger  cars  between  1915  and  1920  was  230  per  cent 
as  compared  with  an  increase  of  435  per  cent  for  motor  trucks.  This  and  the  data  quoted  above 
are  taken  from  the  National  Automobile  Chamber  of  Commerce:  Facts  and  Figures  of  the  Automobile 
Industry,  1921. 

t  See  discussion  of  motor  industry  by  F.  R.  Pleasonton's  article,  entitled  "  The  Automotive 
Industry,  Avnals  of  the  American  Academy  of  Political  and  Social  Science,  Sept.,  1921,  p.  107  et  seq, 

%  Most  of  the  debt  in  1899  for  highways  was  in  Massachusetts.  Bureau  of  the  Census,WeaUh 
Debt  and  Taxation,  1913;  Financial  Statistics  of  the  States,  1919. 


K 


136 

in  any  other  State,*  and  also  represents  a  larger  portion,  22.2 
per  cent,  of  the  total  number  of  motor  vehicles  registered,  although 
in  Massachusetts  and  Connecticut  motor  trucks  represent  about 
one-fifth  of  all  motor  vehicles  registered. 

A  traffic  census  taken  by  the  New  York  Highway  Department 
on  eight  of  the  State's  highways  in  four  different  years  show  the 
following  results  :f 

TABLE  17. 
Chakacter  of  Egad  Traffic,  1909,  1914,  1916,  and  1919. 


Total  traffic 

Motor  vehicles 

Horse  Vehicles 

Year 

Number 

Increase 
over 
1909 
(Per- 
centage) 

Increase 
over 
1916 
(Per- 
centage) 

Number 

Increase 
over 
1909 
(Per- 
centage) 

Increase 
over 
1916 
(Per- 
centage) 

Number 

Decrease 
over 
1909 
(Per- 
centage) 

Decrease 
over 
1916 
(Per- 
centage) 

1909 

1914 

1916 

1919 

1,944 

3,646 

5,609 

12,052 

""'88 
188 
520 

"ii5 

584 

2,418 

4,673 

11,879 

'sii 

700 
1,879 

■  ■ ■ i48 

1.360 

1,228 

936 

493 

"io 

31 
64 

47 

The  number  of  trucks  and  busses  counted  in  the  same  census 
in  1916  were  299  and  in  1919  986,  an  increase  of  230  per  cent 
as  compared  with  148  per  cent  for  alT  motor  traffic.  The  density 
of  motor  traffic  as  represented  by  the  number  of  automobiles  per 
mile  of  public  rural  road  is  8.3  in  l^ew  York.  This  is  exceeded 
in  Rhode  Island,  New  Jersey,  Massachusetts,  California  and  Con- 
necticut, with  densities  varying  from  23.3  automobiles  per  mile 
to  8.5  automobiles  per  mile. J 

It  has  already  been  suggested§  that  construction  of  highways 
has  been  one  of  the  principal  causes  of  State  debt  in  the  United 
States.  This  is  even  more  true  in  ^ew  York  than  in  other  states. 
In  1897  New  York  had  no  improved  highways  outside  of  the 
cities.  In  this  year  the  State  made  its  first  appropriation  — 
$250,000  for  this  purpose.  This  was  followed  by  further  appro- 
priations, and  in  1907  bonds  were  first  issued  by  the  State  for 
highway  improvements.    A  fifty-million  dollar  issue  was  author- 

.»of  ^^o  number  of  motor  vehicles  registered  in  New  York  in  the  first  six  months  of  1921  was 
721,488,  an  increase  of  8  per  cent  over  1920.  Ohio  stands  second  in  the  number  of  motor  trucks 
registered,  with  83,300. 

t  Report,  New  York  Stale  Hiohway  Dept.,  1919. 

t  Automobile  Facts,  pp.  34-37. 

§  Supra,  p.  135. 


137 


izcd  in  this  year  and  another  fifty-million  issue  in  1912.  The 
outstanding  State-highway  debt  has  remained  at  $80,000,000  since 
1917. 


TABLE  18. 

Funded  State  Debt  Outstanding  for  Highways  and  Other 

Purposes  in  Xew  York. 


Year 

Total 

Highways 

Percentage 

of  total 

debt  for 

highway 

purposes 

1905 

$11,155,660 

57,230,660 

186,400,000 

236,024,000 

1910 

$16,000,000 
65,000,000 
80,000.000 

27.9 

1915 

34  9 

1920 

33  9 

A- 

This  represents  more  than  one-third  of  the  total  State  debt,  and 
more  than  one-half  of  the  total  of  all  State  debts  for  highway  pur- 
poses in  the  United  States.*  The  expenditures  of  the  State  High- 
way Department  in  New  York  for  the  ten  years  ending  in  1920 
were  between  sixty-three  and  sixty-four  million  dollars. f  These 
include  State  aid  to  towns  and  counties,  but  are  exclusive  of  other 
local  expenditure  for  roads,  and  do  not  include  the  State  outlays 
for  highways  construction,  which  exceeded  in  amount  the  expend- 
itures of  the  State  Highway  Department  during  the  same  decade. 

The  towns  followed  the  State  in  appropriating  funds  for  tht- 
improvetnent  of  highways,  and  the  amounts  spent  locally  soon 
exceeded  State  expenditures  for  this  purpose.  In  1920  town 
highway  expenditure  in  New  York  was  about  fourteen  million 
dollars,  as  compared  with  twelve  million  spent  by  the  State  High- 
way Department.  Some  of  the  money  spent  locally  is  derived 
from  the  motor-vehicle  revenue  and  from  State  aid,  but  about 
three-fourths  of  it  is  from  town  and  county  appropriations. 


*  U.  S.  Bureau  of  the  Census,  Financial  Statistics  of  States,  1919. 
t  Comptroller's  Reports. 


138 


TABLE  19. 


Receipts  and  Expenditures    for   Town    Highways.      New 

York,  1909-1920.* 


Year 

Amount 
available 
for  town 
highway 
expenditxire 

Amount  of 

town  highway 

expenditure 

Amotmt  of 
motor  vehicle 

revenue 

distributed  to 

localities 

Amount  of 
State  aid 

1909 

$6,109,136 

8,882,456 

7,571,367 

7.251,805 

7,845,875 

7,984,427 

8,895,282 

9,295,279 

10,465,376 

11,901,894 

14,617,526 

14,000,000 

$5,059,873 
8,345,514 
7,114,016 
6,647,495 
7,515,002 
7,154,578 
8,009,341 
8,010,510 
8,574,726 
9,310,809 

12,314,572 

$1,441,751 
1.691.912 

1910 

1911 

1.631.985 

1912 

1  665.501 

1913 

1,719,872 
1,815,919 
1,877.673 
1,950,575 
1,956,206 
2,046,916 
2,146,625 
2  210  748 

1914 

1915 

1916 

$359,673 
2,061,984 
2,381,761 
2,852,031 
2,142,076 

1917 

1918 

1919 

1920 

The  State  has  improved  about  three^fourths  of  the  proposed 
State  highway  system  of  about  thirteen  thousand  miles.  Tht 
towns  in  1918  had  improved  about  thirteen  thousand  miles  of 
their  seventy-one  thousand  miles  of  public  highways.  With  so 
much  highway  still  unimproved  there  will  doubtless  be  large 
expenditures  for  highway  construction  for  some  years  to  come, 
and  as  the  mileage  improved  increases,  the  cost  of  maintenance, 
repair  and  reconstruction  grows. 


*  Figures  from  Anmud  Reports  of  Department  of  State  Highways,  supplemented  by  the  Annual 
Reports  of  the  State  Comptroller. 

1912-1916  inclusive  estimates  based  on  preceding  year's  revenues  from  motor  vehicles.     1917- 
1920  from  Reports  of  Department  of  State  Highways. 


139 


The  taxes  in  New  York. —  Motor  vehicles  were  taxed  as  per- 
se nalty  under  the  general-property  tax  in  ^ew  York  until  1911, 
when  a  special  state  license  tax,  graded  according  to  hoi*se-power, 
was  substituted.  This  law  has  been  subject  to  frequent  revision. 
The  most  important  changes  were  made  in  1917  and  1919.  In 
1917  tiTicks  and  trailers  were  withdrawn  from  the  tax  based  on 
horse-power,  and  subjected  to  a  tax  based  on  gi'oss  weight  instead ; 
and  omnibuses  were  rated  according  to  seating  capacity.  In  1919 
the  basis  of  the  tax  on  passenger  cars  w^as  changed  so  as  to  in- 
clude cost  as  well  as  horse-power. 

Under  the  present  law  the  measure  of  the  tax  for  pleasure  ears 
is  both  horse-power  and  cost  —  the  rate  being  twenty-five  cents 
per  horse-power  plus  forty  cents  per  $100  list  price  for  cars  three 
years  old  or  less,  twenty  cents  per  $100  list  price  for  cars  from 
four  to  five  years  old,  and  ten  cents  for  cars  over  five  years.  The 
minimum  fee  for  four-cylinder  cars  is  five  dollars;  for  six-cyl- 
inders or  more,  ten  dollars.* 

Omnibuses  are  subject  to  an  initial  charge  of  ten  dollars  for 
number  plates  plus  a  tax  based  on  seating  capacity  ranging  from 
$15.00  for  a  seating  capacity  of  five  to  $67.50  for  a  seating 
capacity  of  thirty,  with  an  additional  charge  of  two  dollars  per 
person  over  thirty,  f 

The  measure  of  the  tax  for  motor  trucks  is  gross  weight  —  the 
rate  being  five  dollars  per  ton  gross  weight  up  to  fourteen  tons, 
with  a  minimum  fee  of  ten  dollars,  and  ten  dollars  per  ton  gross 
weight  over  fourteen  tons.:]:  The  minimum  fee  for  trailers  is  five 
dollars,  increasing  up  to  thirty  dollars  for  fourteen  tons,  with  a 
charge  of  five  dollars  a  ton  for  every  ton  in  excess  of  fourteen. 
Motor  cycles  are  taxed  at  a  flat  rate  of  $2.50.  Dealers  pay  a 
license  of  fifteen  dollars,  plus  five  dollars  for  each  duplicate  set 
of  licenses.  § 

These  taxes  are  in  lieu  of  all  other  taxes  on  motor  vehicles, 
except  that  motor  vehicles  in  the  hands  of  dealers  and  manufac- 
turers are  taxed  as  personal  property.  The  initial  license  fee 
for  chauffeurs  is  five  dollars,  with  a  renewal  fee  of  two  dollars. 
Owners  are  charged  two  dollars  for  initial  license  and  one  dollar 


*  Highway  Law,  Sec.  282. 
t  Highway  Law,  Sec.  282,  Subdiv.  6a. 

t  The  maximum  gross  weight  of  motor  trucks  has  been  limited  to  twelve  and  one-half  tons  since 
1918.     There  are  no  apparent  exceptions  to  this  rule  {Highway  Law,  Sec.  282a). 
S  Highway  Law,  Sec.  282,  284,  302. 


II 


140 


141 


i:V 


for  renewal.  Tlio  law  is  now  administered  by  the  State  Tax 
Commission,  and  the  proceeds,  which  are  shared  with  the  local- 
ities" are  used  entirely  for  highway  purposes. 

Motor-vehicle  taxes  of  other  states.-—  The  growth  in  the  num- 
ber of  motor  vehicles  and  in  the  cost  of  roads  has  been  accom- 
panied by  an  interesting  evolution  in  the  character  of  motor- 
vehicle  taxes.  From  small  flat  fees,  in  which  the  revenue  mC'tive 
played  a  subsidiary  part,  these  taxes  have  developed  in  most 
states  into  elaborate  and  heavy  chai^ges  designed  to  yield  a  large 
revenue  and  to  bear  a  relationship  to  road  costs  occasioned  by 
the  vehicles  taxed. 

Thus,  at  the  present  time,  in  only  three  states  is  there  a  flat 
rate  on  passenger  cars,  and  in  only  two  is  there  a  flat  rate  on 
trucks. 

TABLE  20. 

Bases  of  Motor- vehicle  Fees  in  the  United  States.! 

Number  of  States  Using 

This  Method  for 
Passenger 
Basis  Cars      Motor  Trucks 

Horse-power   27  2 

Carrying  capacity 25 

Weight  (vehicle  only)   5  2 

Gross  weight  (vehicle  and  load) 3  7 

Cost  of  vehicle 2  1 

Piston  displacement    1 

Total  width  of  tire 1 

Weight  of  chassis 1 

Flat  rate  per  vehicle 3  2 

Horse-power  plus  gross  weight 3  2 

Horse-power  plus  weight  unloaded 1  2 

Horse-power  plus  cost 1 

Horse-power  plus  capacity 1 

Weight  plus  cost 1 

Weight  plus  capacity 1 

Weight  plus  horse-power  plus  cost 1 

Weight  plus  horse-power,  cost  and  capacity.        . .  1 

*  Since  1919  three-fourths  of  the  proceeds  of  the  tax  have  been  kept  by  the  State.  From  1916 
to  1919  one-half  went  to  the  local  districts.  Cities,  other  than  New  York  City,  are  not  included 
amonjg  ^cal  districts  to  which  motor  vehicle  revenues  are  distributed.     Cf.  infra,  p.  152  et  aeq 

t  R.  K.  Tomlin,     Trend  of  Motor  Vehicle  Legislation,"  Engineering  Newa  Record. 


4  • 


'^ 


Table  20  shows  that  the  usual  measure  for  possenger  cars  is 
horse-power,  and  for  tinicks  carrying  capacity.  Other  measures 
are  gross  weight,  weight  of  the  vehicle  alone,  weight  of  the 
chassis,  cost  of  vehicle,  tire  width,  and  piston  displacement,  and 
various  combinations  of  these. 

'No  other  state  employs  the  same  basis  as  Xew  York  for  the 
taxation  of  passenger  cars.  Not  only  are  there  wide  variations 
in  the  basis  of  the  license  tax,  but  the  rate  varies  so  greatly  in 
the  different  states  using  the  same  base  that  there  is  an  utter  lack 
of  uniformity  in  the  taxation  of  motor  vehicles.  In  the  attempts 
to  tax  such  vehicles  in  proportion  to  their  use  of  the  roads,  thei*e 
would  seem  to  be  no  agreement  as  to  what  constitutes  a  measure 
of  such  use. 

Revenue  from  New  York  motor-vehicle  tax. —  The  State  is 

now  collecting  slightly  more  than  nine  million  dollars  annually 
from  the  tax  on  motor  vehicles.  The  annual  figures  for  a  period 
are  given  in  Table  21. 

TABLE  21. 

Total   Gross   Revenue   from   Motor-vehicle  Taxes. 

New  York,  1911-1920. 

1911    $905,179 

1912    1,056,621 

1913    1,275,727 

1914    1,533,368 

1915    1,913,175 

1916     2,658,042 

1917    4,284,114 

1918    4,945,298 

1919    5,984,660 

1920    8,863,251 

1921    *9,272,864 

Adequacy  of  the  New  York  taxes. —  The  question  of  the  ade- 
quacy of  the  taxes  on  motor  vehicles  can,  we  believe,  be  precisely 
answered  only  by  an  extended  statistical  analysis  along  the  linc^ 
suggested  on  page  134.  This  analysis,  although  an  elaborate  and 
difficult  undertaking,  must  sometime  be  made.     Until  the  result.*, 

*  The  figures  for  1911-1920larc  for  the  automobile  years.      The  VJ'21  figure  is  for  the  fiscal 
ear  ending  July  Ist. 


Il 


11; 


142 


of  such  an  analysis  are  available,  estimates  of  the  adequacy  of 
the  taxes  can  only  be  rough  and  approximate. 

From  such  data  as  are  now  obtainable,  it  appears  for  the  Com- 
mittee that  the  present  revenues  from  the  users  of  the  roads  are 
grossly  inadequate. 

In  the  first  place,  there  is  the  testimony  of  those  interested  in 
the  motor  industry  itself.  The  more  moderate  leaders,  in  confer- 
ences with  the  Committee,  have  repeatedly  expressed  the  opinion, 
based  on  their  own  independent  study  of  the  situation,  that  the 
taxes  may  be  increased  with  fairness  and  equity. 

As  has  been  explained  above,*  to  ascertain  precisely  the  portion 
of  the  cost  of  the  roads  which  are  furnished  because  of  the  de- 
mand of  motor  vehicles  for  additional  facilities  is  a  problem,  the 
data  for  the  solution  of  which  are  not  at  present  available.  The 
following  facts,  however,  may  prove  suggestive. 

A  rough  estimate  of  road  costs  for  the  State,  towns  and  New 
York  city  (those  jurisdictions  sharing  in  the  motor  vehicle  reve- 
nues) for  the  decade  1911-1920  is  $408,000,000.  This  does  not 
cover  interest  on  highway  debts  excepting  for  the  State.  The 
gross  amount  of  motor  vehicle  revenues  during  this  same  period 
was  about  $40,000,000,  or  less  than  10  per  cent  of  these  expendi- 
tures. The  amount  of  expenditures  of  those  jurisdictions  not  shar- 
ing in  the  motor  vehicle  tax,  viz.,  cities  other  than  New  York, 
villages,  and  counties,  is  not  available,  bnt  must  amount  to  -i 
considerable  sum  in  addition. 

As  has  been  explained,  the  lack  of  technical  knowledge  regard- 
ing the  precise  effects  of  motor  traffic  upon  the  roads  makes  it 
impossible  to  subdivide  the  cost  figures  accurately  bnt  it  would 
be  surprising  if  future  researches  should  reveal  that  the  great 
bulk  of  the  road  costs  of  this  decade  were  not  properly  cbargeable 
to  motor  traffic  under  this  analysis.  Plainly  there  is  a  wide  mar- 
gin for  future  development  of  the  taxation  of  motor  transporta- 
tion before  it  reaches  the  theoretical  maximum  indicated  by  the 
analysis.  It  is  clear  that  the  modest  increase  in  motor  taxes  rec- 
onnnendcd  in  this  rejiort  prolmbly  falls  far  within  the  limits  of 
tiieoretical  equity. 


♦  Supra,  p.  134. 


V 


^ 


143 


Certain  leaders  in  the  automobile  industry  have  advanced  the 
contention  that  automobile  taxes  should  be  sufficient  to  cover 
costs  of  upkeep  and  maintenance,  with  no  contribution  toward 
capital  costs.  Precise  figures  regarding  expenditures  for  main- 
tenance are  not  available  but  it  appears  that  $22,000,000  is  a 
very  modest  estimate  of  the  amount  being  spent  annually  for  this 
purpose  by  the  State  and  the  localities.  This  compares  with 
total  gross  revenues  from  motor  vehicle  license  of  only  $9,000,000. 

Some  indication  of  what  it  may  be  fair  to  charge  in  this  State 
is  given  by  the  facts  as  to  the  fees  charged  in  other  states.  Table 
22  compares  the  fees  paid  by  motor  vehicles  of  several  types  in 
this  State  with  those  paid  in  neighboring  states. 


TABLE  22 

Comparison  of  New  York  and  Neighboring  State  License 
Fees  on  Five  Types  of  Motor  Vehicles 

1921 


State 


Connecticut. . . . 

Delaware 

Maine 

Maryland 

Massachxisetts. . 
New  Hampehire 
New  Jersey .... 

New  York 

Pennsylvania. . . 
Rhode  Island... 

Vermont 

Virginia 

West  Virginia .  . 


25  hp. 

passenger 

car 


$18  00 
13  30 
10  00 
15  00 
10  00 
20  70 
10  00 

13  00 
10  00 

14  90 
25  00 

15  00 
17  50 


1-ton 

truck 

(pneumatic 

tires) 


$22  50 
24  00 
10  00 
15  00 
10  00 
36  00 
27  00 
15  00 
32  00 
20  50 
20  00 
15  00 
24  60 


U-ton 
truck 
(solid 
tires) 


$40  00 
30  80 
20  00 
40  00 
20  00 
65  45 
33  00 
£0  00 
40  00 
32  70 
30  00 
20  00 
50  00 


3j-ton 
truck 
(solid 
tires) 


$90  00 
63  20 
40  00 

100  00 
40  00 

134  30 
57  00 
40  00 

100  00 
63  05 

100  00 
40  00 

100  00 


5-ton 
truck 
(solid 
tires) 


$187  50 
82  80 
50  00 

150  00 
50  00 

175  95 
72  00 
55  00 

200  00 
80  95 

125  00 
55  00 

150  00 


*  t 


k  1 


114 

Graph  11  illustrates  this  situation.  Included  in  this  compari- 
son are  the  fees  which  would  be  payable  under  the  schedule  sug- 
gested by  the  Motor  Vehicle  Conference  Committee.*  That  the 
fees  in  New  York  are  relatively  low  is  clearly  apparent. 

Another  interesting  comparison  is  made  in  Table  23  and  Graph 
12.    It  appears  that  the  State's  share  of  the  motor-vehicle  reve- 

♦  Cf.  infra,  p.  150. 

GRAPH  11 

COMPAKISON    OF   'Nbw   YoRK   AND   NEIGHBORING    StATE   LiCENSE 

Fees  on  Five  Types  of  Motor  Vehicles 


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145 


GRAPH  11  (Continued) 

Comparison  of  New  York  and  Neighboring  State  License 
Fees  on  Five  Types  of  Motor  Vehicles 

1921 


^iron  r/XMrA-  -  So//e^  T/r^s 


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146 


GRAPH  12 

State's  Share  of  Revenue  from  Motor- Vehicles  Tax  and 
Expenditure  of  State  Highways  Department  Compared 

1901-1920 


*  ! 

*  ! 


147 

nues  constitutes  scarcely  one-third  of  the  expenditures  of  the 
State  Highway  Department  which  include  no  outlays  for  capital 
construction  paid  from  the  Highway  Improvement  Fund  and 
none  of  the  interest  on  highway  debt. 

TABLE   23. 

State's   Share  of  Revenue  from  Motor- Vehicle   Tax  and 
ExpExNDiTURE  OF  Sta  IE  HicniwAYs  Depakt:mext  Compared 

1901-1920* 


Year 

State's  share 

niotor- vehicle 

tax 

F]xpcnditures 
of  the  State 

Highway 
Department 

Ratio  of  State'8 

share  of  motor 

vehicle  tax  to 

expenditures 

of  State 

Highway 

Departnieut 

1901                                           

Taxed  as 
personal 
proi)erty 
until  1911 

$878,799 
1,053,762 
1,267,833 
1,528,221 
1,857,289 
2,125,057 
2,026,189 
2,677,532 
2,509,610 
4,214,235 

$238,428 
567,173 
977,847 
1,041,297 
1,342,005 
1,175,595 
1.020,828 
1,493,780 
3,086,537 
3.478.775 
3.045,208 
4.279,319 
5,343,622 
4,186,981 
5,804,081 
6.315,307 
6,614,806 
6,912,859 
9,135,938 
12,030,078 

1902                                                 

1903                                      

1904 

1905                                                   

1906                                             

1907.              

1908                                             

1909    ...            

1910                                           

1911 

29  re 

1912 

25 

1913 

23 

1914 

37 

1915 

32 

1916 

1917 

34 
31 

1918 

39 

1919 

28 

1920 

35 

When  the  figures  of  revenue  are  reduced  to  an  average  per 
motor  car  a  comparison  with  other  states  shows  I^ew  York  at  the 
hottom  of  the  list.  Moreover,  the  revenue  forms  in  this  State  a 
smaller  percentage  of  the  expenditures  of  the  State  Highway  De- 
partment than  in  any  other  neighboring  State.  This  is  in  spite 
of  the  fact  that  Xew  York  has  the  highest  per  capita  State  road 
debt  of  any  of  the  states  in  the  group.  These  facts  are  set  forth 
in  Table  24  and  Graphs  13,  14  and  15. 


*  The  data  arc  from  the  reports  of  the  Comptroller.  The  motor  vehicle  revenues  exclusive  i»f 
the  miscellaneous  fees  charged,  and  of  the  amount  distributed  to  the  local  districts.  Total  gross 
receipts  from  motor  vehicles  exceeded  nine  million  in  1920;  but  the  total  gross  receipts  for  the  de- 
cade 1911-1920  are  less  than  two-fifths  of  total  State  highway  expenditures.  There  are  in  addition 
heavy  local  expenditures  for  highways  and  no  local  motor  vehicle  fees. 


148 
TABLE  24 

COMPAEISONS    OF    ToTAL    MoTOR-VeHICLE    ReVENUES    AND    PeE- 

Capita  State  Road  Debt* 


State 


Maryland 

New  Hampshire . 

Delaware 

West  Virginia .  . 

Virginia 

Connecticut. . .  .  , 
New  Jersey .  .  . . . 

Vermont 

Massachusetts. . . 
Pennsylvania. . . . 

Maine 

Rhode  Island 

New  York 


Average 

gross  revenue 

return  per 

motor  car 

registration 


$20  53 
18  69 
18  03 
15  87 
15  70 
15  55 
15  .39 
14  40 
14  07 
14  01 
13  02 
10  51 
10  16 


Ratio  of 
motor  car 

license 

revenue  to 

expenditure 

for  State  roads 


Per  cent 

46 
94 
527 
195 
85 
52 
52 
63 
77 
55 
48 
63 
26 


Per  capita  debt 
for  State  roads 


SIX 


34 
84 
2  77 


2  79 


2  56 

2  73 

17  45 


*  The  data  are  from  the  Financial  Statistics  of  Cities,  1919,  and  Automobile  Facts,  1920. 

In  addition  to  these  revenues  motor  vehicles  pay  a  tax  as  personal  property  in  Maryland,  West 
Virginia,  Virginia,  Connecticut,  New  Jersey,  Massachusetts,  Maine,  and  Rhode  Island,  and  a 
gasoline  tax  is  imposed  in  Connecticut  and  Pennsylvania. 

GRAPH  13 
Average  Gross  Revenue  Return  Per  IIotor-Car  Registra- 
tion IN  New  York  and  Neighboring  States 

1920 


149 


GRAPH  14 

Per-Capita  Debt  for  State  Roads  in  New  York  and  Neigh 

BORING  States 


'.r 


^^- 


*• 


^- 


^ 


:S 


a 


^ 


GRAPH  15 
Xew  York  State  Highway  Debt  Compared  with  Totai-  Net 

State  Debt  Outstanding 


A^S 

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160 

Changes  in  character  and  rates  of  motor-vehicle  taxes  recom- 
mended.—  In  the  opinion  of  the  Committee  the  data  presented  in 
the  preceding  section  justify  a  material  increase  in  the  taxes 
on  motor  transportation.  Part  of  this  increase  should  be  secured 
through  a  revision  of  motor  vehicle  license  fees.  The  form  and 
rates  of  the  licenses  must  now  be  considered. 

The  factors  detennining  wear  on  the  roads  are  weight,  mileage, 
speed,  and  tires,  their  kind,  condition,  and  width.     The  factor 
of  speed  can  be  reached  only  very  indirectly  as  it  is  related  to 
horse-power  and  weight,   and  through  speed  regulation.     Gross 
weight  is  now  the  basis  for  taxe^  on  trucks  in  seven  states,  includ- 
ing New  York,  and  for  taxes  on  passenger  cars  in  three.    This  is 
obviously  the  best  measure  of  weight,  although  carrying  capacity 
bears  a  fairly  close  relation  to  gross  weight,  and  horse-power  bears 
some  relation  and  in  the  case  of  passenger  cars  is  more  easily 
determined.     The  importance  of  the  kind  of  tire  has  not  been 
recognized  in  most  State  laws.     The  condition  of  tires,  which  is 
important,  cannot  be  measured,  but  kinds  of  tires  can  readily 
be  classified.     The  impact  from  solid  rubber  and  steel  tires  is 
much  greater  than  that  from  pneumatic  tires.    Another  important 
element  is  the  distribution  of  weight,  which  depends  on  the  width 
of  the  tire  and  the  division  of  total  weight  between  front  and 
rear  wheels.    This  is  somewhat  difiicult  to  reach  by  varying  rates 
of  taxation  but  definite  limitations  can  l>e  established.    The  most 
eifective  way  of  measuring  mileage  would  seem  to  be  a  gasoline 
tax.* 

All  of  these  factors,  excepting  mileage,  are  considered  in  the 
uniform  vehicle  law  endorsed  by  the  Motor  Vehicle  Conference 
Committee.f  The  law  proposes  an  annual  fee  for  passenger  cars 
and  motor  trucks  of  25  cents  per  horse-power  for  all  cars,  plus 
25  cents  per  hundred  pounds  gross  weight  for  cars  with  pneumatic 
tires,  35  cents  per  hundred  pounds  gross  weight  for  cars  with 
solid  rubber  tires,  and  50  cents  per  hundred  pounds  gross  weight 
for  cars  with  steel  or  other  hard  tires,  this  rate  to  be  doubled 

♦  Cf.  infra,  p.  151. 

t  A  committee  representing  the  American  Automobile  Association,  the  Motor  and  Accessory 
Manufacturers  Association,  the  National  Automobile  Chamber  of  Commerce,  the  National 
Automobile  Dealers  Association,  the  Rubber  Association  of  America,  and  the  Trailer  Manufacturers 
Association. 


■<l 


IV 


151 

for  cars  used  for  transportation  of  persons  for  hire.*  It  is 
suggested  that  motor  cycles  be  taxed  at  a  flat  rate  of  five  dollars, 
that  dealers  be  charged  twenty-five  dollars  for  the  first  five  sets 
of  plates,  plus  two  dollars  for  each  additional  set,  and  that 
chauffeurs  and  owners  be  taxed  two  dollars  each  for  a  perpetual 
license. 

The  suggested  basis  for  the  taxes  on  passenger  cars,  motor 
trucks,  and  motor  cycles  appeals  to  the  Committee  as  being  on 
the  whole  the  most  satisfactory  yet  devised  and  the  Committee 
recommends  thM  the  basis  prescribed  in  the  suggested  Uniform. 
Vehicle  Tax  Laiv  be  adopted  by  the  Legislature. 

If  the  proi>osed  uniform  law  were  adopted  in  New  York  the 
revenue  from  motor  vehicles  would  be  materiallv  increased.  The 
increase  on  five  types  of  vehicles  cited  by  Mr.  R.  K.  Tomlin  f 
varies  from  fifteen  to  sixty-three  and  one-half  per  cent.  This 
should  produce,  on  a  conservative  estimate,  an  increase  of  twenty- 
five  per  cent  in  revenue,  or,  on  the  basis  of  the  1921  figures,  two 
million  dollars.  The  doubling  of  the  motor  cycle  tax  would  add 
about  $75,000.  The  Committee  recommends  that  this  scale  of 
rates  on  passenger  cars,  trucks,  and  motor  cycles  be  adopted  by 
the  Legislature.  The  result  would  be  a  slight  increase  in  pas- 
senger fees  and  a  substantial  increase  in  truck  fees,  especially 
on  the  larger  trucks.^  It  suggests  no  change  in  the  dealers 
license  or  operators  and  chauffeurs  fees  at  this  time.  The  grand 
total  of  all  mocor  vehicle  receipts  for  the  fiscal  year  ending  June 
30,  1921,  was  $9,272,864.  Under  the  recommended  scale  the 
yield  would  probably  have  been  about  eleven  and  one-quarter 
million  dollars. 

Gasoline  tax  recommended.— The  Committee  recommends 
that  a  tax  on  gasoline  be  made  a  part  of  the  system  of  taxes  on, 
motor  transportation.  A  tax  of  one  cent  per  gallon  is  now  in 
operation  in  thirteen  states.  §  Oregon  has  a  tax  of  two  cents  per 
gallon.  Two  of  the  states  adjoining  INTew  York  have  such  taxes, 
Connecticut  and  Pennsylvania. 

*  Gross  weight  to  be  regarded  as  the  actual  weight  of  the  vehicle  plus  the  sum  of  the  adult 
seating  capacity  multiplied  by  150  pounds. 

t  Trend  of  Motor  Vehicle  legislation.     Engineering  News'  September,  1921. 

t  Cf.  supra,  p.  143. 

§  Colorado.  Kentucky,  and  New  Mexico  (adopted  before  1921);  Arizona.  Arkansas.  Connecticut 
Florida,  Georgia.  Montana,  North  Carolina.  Pennsylvania,  South  Dakota,  and  Washington 
(beginning  in  1921).      National  AutomobUe  Chamber  of  Commerce,  statement  dated  September   19 , 


v 


152 

The  gasoline  tax  makes  possible  a  fairer  distribution  of  the 
motor  traffic  taxes  than  would  be  possible  with  vehicle  fees  alone. 
It  appears  to  be  the  best  practicable  measure  of  the  use  of  the 
roads.  It  makes  it  possible  to  take  mileage  into  account  in  ap- 
portioning the  cost  of  roads  and  it  reaches  the  cars  of  other  states 
operating  in  ^N'ew  York.  An  additional  reason  in  favor  of  the 
adoption  of  this  tax  by  the  State  is  the  fact  that  unless  it  is 
generally  adopted  by  the  states  it  is  likely  to  be  seized  by  the 
Federal  government  as  a  source  of  national  revenue. 

A  gasoline  tax  of  one  cent  a  gallon  would  yield  in  the  neighbor- 
hood of  four  million  dollars  annually.* 

Distribution  of  the  yield  of  motor-vehicle  taxes. —  The  Con- 
ference of  Mayors  has  called  attention,  in  very  impressive  fashion, 
to  the  fact  that  the  present  method  of  distributing  the  revenue 
from  motor  vehicle  fees  is  open  to  criticism  from  the  point  of  view 
of  the  cities  of  the  State.  As  it  now  stands  the  law  provides  that 
three-fourths  of  the  revenue  shall  be  spent  by  the  State  Commis- 
sioner of  Highways  for  the  maintenance  and  repair  of  the  im- 
proved roads  of  the  State.  The  remaining  one-fourth  is  distributed 
to  the  county  treasurers,  each  county  receiving  one-fourth  of  the 
fees  collected  from  residents  of  the  county,  to  be  used  for  the  per- 
manent construction  or  improvement  of  town  highways.  Excep- 
tions to  this  general  statement  include  the  City  of  New  York, 
whose  general  funds  axe  augumented  to  the  extent  of  one-fourth 
of  the  fees  collected  within  its  boundaries,  and  Westchester  County, 
which  may  devote  motor-vehicle  revenue  to  the  improvement  of 
roads  bordering  on  the  City  of  New  York  even  though  they  lie 
within  the  limits  of  Westchester  cities. 

*  The  basis  of  the  estimate  for  the  jrield  of  the  gasoline  tax  is  this: 

Total  United  States  consumption  of  gasoline.  1920 4,256,428,065  gallons 

Total  used  for  motor  vehicles  (assuming  that  the  annual  average  gasoline 

consumption  of  passenger  cars  is  330  gallons;  for  motor  trucks,  800 

gallons:  for  motor  cycles,  50  gallons) 3,447,228,950  gallons 

Used  for  other  purposes 809 ,  199 ,055  gallons 

Gasoline  used  for  motor  vehicles  in  New  York 292,638,660  gallons 

Gasohne  consumed  for  other  purposes  (assuming  that  New  York  propor- 
tion of  gasoline  for  other  purposes  is  same  as  the  proportion  of  New  York 
to  total  United  States  population) 79,463,347  gallons 

Total  gasoline  consumed  in  New  York  in  1920 372 ,  102 ,007  gallons 

Tax  at  one  cent  per  gallon $3 ,  700 ,000 

Tax  (assuming  10  per  cent  increase  in  consumption  in  1921) 4,000,000 

Basing  New  York  consumption  entirely  on  proportion  of  motor  vehicles  in 

New  York  to  total  motor  vehicles  in  the  United  States,  gasoline  con- 

sumed  in  New  York  State 361 ,420,579  gallons 

Tax  of  one  cent $3,600,000 

Consequently  a  tax  of  one  cent  would  probably  j^eld  between  three  and  one-half  and  four  and 
one-half  miUion  dollars  in  1022. 


{ 


'4i    Vv 


r 


153 


The  Committee  believes  that  the  arguments  in  favor  of  permit- 
ting the  city  to  share  in  the  distribution  are  stronger  than  those 
against  the  practice  and  it  recommends  that  in  distributing  the 
yield  of  the  augumented  taxes  in  motor  transportation  recom- 
mended above,  the  cities  be  given  a  sliare  to  assist  in  defraying  the 
increase  in  costs  occasioned  by  the  development  of  motor  vehicle 
transportation. 

Effect  of  the  proposals.—  The  net  result  of  the  adoption  of  the 
Committee's  recommendations  regarding  the  taxation  of  motor 
vehicles  would  be  to  increase  the  revenues  from  this  source  from 
about  nine  million  dollars  to  about  fifteen  million  dollars.  The 
taxes  would  still  be  reasonable  as  compared  with  those  in  neigh- 
boring states.  The  yield  would  still  be  much  less  than  either  the 
current  expenditure  for  the  maintenance  of  the  roads  and  streets 
or  the  cost  of  the  additional  road  facilities  furnished  to  supply 
the  demands  of  automobile  users. 

The  increased  rates  on  motor  trucks  are  moderate,  but  the  Com- 
mittee believes  that  they  should  not  be  radically  increased  until 
the  road  costs  occasioned  by  their  use  are  more  definitely  ascer- 
tained. Statements  have  been  made  to  the  Committee  bv  reliable 
road  engineers  that  no  less  than  one-half  of  the  present  costs  of 
constructing  roads  in  this  State  are  directly  traceable  to  the  use 
of  trucks.  This  claim  is  hotly  disputed,  however,  and  some  of 
the  results  of  the  recent  investigations  of  the  Bureau  of  Public 
Roads  of  the  United  States  Department  of  Agriculture  *  seem 
to  ascribe  a  larger  responsibility  to  frost  and  a  smaller  responsi- 
bility to  wear  and  tear  of  trucks  than  has  been  considered  correct 
in  the  past.  If  frost  is  primarily  responsible  for  road-breakdown, 
the  charge  should  not  be  placed  against  the  motor  truck  alone  but 
upon  all  types  of  road  users  who  require  the  type  of  road  destroyed 
by  the  frost. 

The  Tax  on  Transfers  of  Stock 

The  stock-transfer  tax  is  a  tax  of  two  cents  per  hundred  dollars 
face  value  or  fraction  thereof  on  all  transfer  of  stock.f  Trans- 
fers of  stock  having  no  par  value  are  taxed  at  two  cents  per  share. 

*  The  California  Highway  Study  particularly, 
t  Tax  Lair,  ait.  12. 


—    > 


V 


164 

• 

The  tax  was  first  imposed  in  1905,  and  in  the  sixteen  years  in 
which  it  has  been  in  operation  several  amendments  have  been 
made,  as  need  has  arisen,  so  that  what  constitutes  a  taxable  trans- 
fer has  been  clearly  defined,  and  the  administration  has  been 
changed  to  prevent  evasion. 

With  the  improvements  of  administration  and  with  the  growing 
volume  of  stock  transfers,  most  of  them  on  the  stock  exchange, 
the  revenue  from  this  source  has  grown  rapidly.*  The  number  of 
such  transfers  varies  so  greatly  with  business  conditions  that  the 
amount  of  revenue  derived  from  this  source  necessarily  fluctuates 
widely  from  year  to  year,  but  the  number  of  exchanges  is  always 
sufficiently  large  to  produce  an  important  sum,  even  in  years  of 
business  depression. 

A  stock-transfer  tax  of  the  same  amount  is  imposed  in  Massa- 
chusetts (established  1914)  and  Pennsylvania  (established  1915), 
and  since  1917  a  similar  tax  has  been  collected  by  the  federal 
government,  most  of  the  proceeds  of  which  come  from  !N'ew  York 
transfers.  The  federal  government  also  taxes  sales  of  produce  for 
future  delivery  in  the  same  manner,  but  the  revenue  from  this 
source  is  comparatively  small. 

The  justification  of  the  stock-transfer  tax  appears  to  some 
students  to  rest  upon  the  assumption  that  it  operates  as  a  special 
tax  upon  profits  in  which  chance  and  "  conjuncture  "  play  a  large 
part.  On  this  ground  the  economist,  Wagner,  defends  it  as  "a 
postulate  of  distributive  justice."  In  discussing  the  same  point 
Pierson  writes :  "  Under  the  system  of  free  competition  '  conjunc- 
ture' assumes  great  importance,  and  that  is  what  constitutes  the 
characteristic  feature  of  modem  commerce  and  industry.  It  is 
through  the  operation  of  *  conjuncture '  that  some  people  acquire 
fortunes  which  they  have  not  earned,  or  only  partly  earned,  just 
as  others  lose  fortunes  through  no  fault  of  their  o^vn.  Taxes 
should  be  used  as  a  means  of  mitigating  this  evil."  f 


*  The  revenue  from  tax  on  stock  transfers  has  been  as  follows: 

W05 $1,226,758  1911 . . . .$3,499,811 

1^06 6,631 ,903  1912 3,653.037 

1»07 5,575,987  1913 2.927.811 

1«0S 3.907.373  1914 2.075.778 

1009 5.355,546  1915 3,540.334 

1010 4,635,443  1916 4,865.765 

t  Pierson,  Principles  of  Economics,  Vol.  II. 


1917 $7,786,512 

1918 5,312,033 

W19 6,989,317 

1920 10,648,993 

1921 10.800.000 

^estimate) 
Comptroller's  Reports. 


155 

« 

On  the  other  hand,  other  economists  *  emphasize  the  great 
advantage  of  perfectly  free  and  unrestricted  security  markets  and 
consider  any  special  taxation  resting  on  the  exchange  of  securities 
as  detrimental  to  the  true  interests  of  the  community. 

The  rate  of  the  stock-transfer  tax  is  purely  arbitrary  and  it 
has  been  suggested  that  it  could  be  increased  without  undesirable 
results.  However,  the  attention  of  the  Committee  has  been  called 
to  the  fact  that  the  combined  federal  and  the  State  tax  now 
imposes  a  considerable  restriction  upon  the  operations  of  the  pro- 
fessional speculator  known  as  the  "floor  trader"  reducing  the 
opportunity  for  him  to  enter  the  market  when  variations  in  prices 
are  small  and  thus  tending  to  reduce  the  usefulness  of  the  market 
in  confining  price  variations  to  a  small  range.  While  there 
appears  to  be  little  question  as  to  the  tendency,  the  data  sub- 
mitted are  not  wholly  convincing  regarding  ill-effects  actually 
suffered.  Moreover,  there  appears  to  be  no  conclusive  demonstra- 
tion of  the  claim  that  an  increase  in  the  rate  would  result  in  no 
increase  in  revenue  although  the  Committee  realizes  that  there  is 
a  possibility  of  such  a  result. 

On  the  whole,  the  Committee  is  disposed  to  recommend  that 
the  consideration  of  further  increases  in  the  rate  of  the  stock- 
transfer  taa:  he  deferred  until  the  disappearance  of  the  federal  tax, 
]>ai'ticularly  in  view  of  the  fact  that  the  proposed  tax  on  unincor- 
porated business  f  will  offset  the  profits  of  many  of  the  brokers  on 
the  exchange. 

However,  the  reasons  advanced  for  restricting  the  scope  of  the 
transfer  tax  to  shares  of  stock  alone,  exempting  transfers  of  bonds, 
do  not  seem  adequate  to  the  Committee.  Although  it  is,  of  course, 
true  that  lx>nds  partake  more  of  an  investment  character  and  less 
of  a  speculative  character  than  stock,  nevertheless  there  is  active 
speculative  trading  in  such  securities.  It  is  not  likely  that  a  tal^ 
of  two  cents  per  $100,  or  twenty  cents  for  the  typical  bond, 
would  be  considered  a  factor  of  importance  in  connection  with  a 
sale  for  investment  or  prove  to  be  seriously  repressive  to  trading. 
J^ich  a  tax  in  1921  would  have  yielded  something  over  a  quarter 
of  a  million  dollars,  assuming  transfers  of  United  States  bonSs 
to  have  been  exempt.    The  Committee  recommends  that  the  scope 

*  E.g..  Seligman.  Shifting  and  Incidence  of  Taxation,  pp.  383-384. 
t  Cf.  supra,  p.f  127. 


156 


of  the  transfer  tax  he  extended  so  as  to  include  transfers  of  bonds 
as  well  a^  shares  of  stock. 

The  Taxes  on  Natural  Resources 

The  Committee  has  made  a  brief  sui-vey  of  the  methods  and 
results  of  the  taxation  of  mines  and  forests  in  the  State.  This 
survey  reveals  the  fact  that  there  are  marked  shortcomings  in 
the  operation  of  the  tax  laws  in  both  of  these  special  fields.  In 
this  section  of  the  report  certain  facts  regarding  the  situation  are 
presented  and  the  problems  involved  are  defined.  The  Committee 
refrains  from  making  definite  recommendations  pending  further 
study  and  investigation. 

Mine  taxation. —  Mines  are  classed  as  real  estate  in  !N'ew 
York  State  but  practically  no  consideration  has  been  given  to  the 
difficult  technical  problems  involved  in  their  proper  valuation  for 
purposes  of  taxation.  'New  York's  mineral  resources  are  of  such 
importance  that  this  problem  is  certain  to  become  an  acute  one  in 
the  course  of  the  general  improvement  of  assessment  methods 
which  is  already  under  way. 

Mineral  Resources  of  New  York  State. — The  mineral  re- 
sources of  New  York  State  are  varied,  but  non-metallic  minerals, 
especially  those  of  comparatively  small  value  which  can  only  be 
produced  profitably  close  to  the  market,  predominate.  The  total 
value  of  mineral  products  of  the  State  for  the  year  1018  is  placed 
at  over  fifty-four  million  dollars.*  This  includes  pottery  and 
other  clay  products,  Portland  cement,  building  brick,  limestone, 
and  sand  and  gravel,  which  derive  the  larger  part  of  their  value 
from  manufacture  or  from  the  labor  of  quarrying  and  transporta- 

*  Value  of  mineral  production  in  New  York  for  the  years  1916  and  1918.      (Newland,  D.  H., 
Mineral  Resources  of  the  State  of  New  York;  New  York' State  Museum,  Bulletin  nos.223-4.1919). 

Mineral  jgjg  1916 

Pottery  and  other  clay  products $7,829,399         $5,257,742 

g*|*V  •  •, / 7.336.867  3.698.798 

Portland  cement 6,568.746  5,752,809 

Iro?  o*"f 5.802,870  5.571 ,429 

Natural  gas 5,673, 131  2.524, 115 

Limestone 4,832,348  3,672,454 

Petroleum ..    3.307,814  2,190.195 

Building  bnck 3,063,555  6,497,270 

Gypsum 2,670,099  1,459,587 

Sand  and  gravel 2,176,472  2,644,829 

Other  materials 4,907,986  6.678,719 

Total $54. 169,287       $45,947,947 


\k 


157 

tion.     Other  products  with  a  value  in  excess  of  a  million  dollars 
for  the  year  are  salt,  iron  ore,  natural  gas,  petroleum  and  gypsum. 

Salt  is  mined  in  large  quantities  in  Livingston  and  Genesee 
counties,  and  the  total  product  in  1918  was  valued  at  over  seven 
million  dollars.  -Natural  gas  is  found  in  most  of  the  western 
counties.  The  output  is  increasing  rapidly  in  value,  and  there 
is  some  increase  in  quantity.  The  output  of  petroleum  is  fairly 
steady,  although  decreasing  somewhat  in  amount.  The  value  of 
the  output  is  increasing  at  present.  It  is  found  in  Cattaraugus, 
Allegany  and  Steuben  counties.  Gypsum  occurs  in  the  western 
counties,  particularly  in  Erie,  Genesee  and  Monroe,  and  the  output 
in  1918  was  more  than  one-fourth  of  the  total  product  of  the 
United  States. 

^N^ew  York  S'tate  produced  1.8  per  cent  of  the  total  output  of 
iron  ore  in  the  United  States  in  1917,  with  a  value  equivalent  to 
four  i)er  cent  of  the  total.*  The  actual  value  of  the  New  York 
output  was  $7,381,333.  Both  the  quantity  and  the  value  of  the 
product  reached  their  maximum  in  this  year.  New  York  is  the 
largest  producer  of  magnetite  in  the  United  States,  the  output 
coming  from  a  few  large  mines  in  the  Adirondacks,  and  in  smaller 
quantities  from  southeastern  New  York.  The  largest  iron-ore 
reserve  in  the  State  is  the  Clinton  hematite  deposit  in  Oneida  and 
Oswego  counties,  which  is  being  mined  to  a  limited  extent  at 
present.  This  ore  contains  a  high  percentage  of  phosphorus  and 
is  chiefly  of  use  as  foundry  iron.  The  future  of  the  mining 
industry  of  the  State,  according  to  D.  H.  Newland,  Assistant 
State  Geologist,  will  depend  on  the  utilization  of  iron  ores  of  as 
low  a  grade  as  twenty  or  twenty-five  per  cent. 

Method  of  Taxing  Mines  in  New  York  State. — Where  any 
differentiation  is  made  by  the  various  states  in  the  taxation  of 
mines  it  is  usually  in  the  method  of  assessment.  No  differentia- 
tion is  made  in  New  York  at  present.  Mines  are  taxed  under 
the  property  tax  as  real  estate,  which  is  defined  to  include  "all 
mines,  minerals,  quarries  and  fossils."  f  They  are  assessed  locally 
without  State  supervision,  although  assessors  are  advised  to  con- 
sult  engineers  familiar  with  the  property  in  valuing  mineral 

*  United  Stales  Geological  Survey:     Mineral  Rewurcea  of  the    United  States.       1916,  1917.  191 S 
1919.  1920. 
t  Tax  Law,  1909,  ch.  62,  sec.  6, 


158 

deposits.*  Oil  and  gas  in  the  ground  are  also  regarded  as  real 
estate  and  assessed  locally  as  such.  All  incorporated  mining  com- 
panies are  subject  to  the  four  and  one-half  per  cent  franchise  tax 
based  on  income,  the  same  as  other  corporations. 

Results  of  Local  Assessment. — According  to  the  informa- 
tion submitted  to  this  Committee  the  mining  interests  as  a  whole 
have  not  suffered  from  the  property  tax  to  which  their  properties 
have  been  subjected.  The  local  assessors  are  not  competent  to  as- 
sess projyerty  which  the  mining  engineers  find  difficulty  in  valuing, 
and  they  rarely  consult  either  experts  or  those  familiar  with 
the  properties.  In  other  words,  while  there  is  a  pretense  of  taxing 
mines  at  the  full  present  value,  in  actual  fact  there  is  no  real 
effort  to  secure  an  accurate  assessment.     The  testimony  is  to  the 

9.-' 

effect  that  mineral  lands  are  underassessed  as  compared  with  real 
estate  generally. 

Taxation  of  Mines  in  Other  States. — In  most  of  the  west- 
em  states,  notably  Colorado,  Idaho,  Montana,  Utah,  Washington 
and  N'evada,  mine  taxes  are  based  on  output  in  some  form — an- 
nual net  or  gross  proceeds  or  smelter  returns.  A  tax  of  this  char- 
acter is  exceedingly  difficult  to  equate  with  a  real  estate  tax  as- 
sessed on  a  selling-value  basis  and  usually  operates  to  discriminate 
in  favor  of  concerns  holding  large  reserves. 

Recently  it  has  been  demonstrated  that,  in  states  where  the 
mineral  lands  have  certain  characteristics,  it  is  possible  by  the 
aid  of  skilled  engineers  to  secure  appraisals  which  are  satisfactory 
for  tax  purposes.  Michigan,  Wisconsin  and  Minnesota  are  the 
states  which  have  used  this  method  most  successfully.  Recently 
New  Mexico  has  completed  an  engineering  appraisal  of  its  mines 
and  mineral  lands.  Arizona,  by  a  system  of  capitalization  of 
earnings  has  approximated  the  same  result.  A  dependable 
appraisal  of  such  property  involves  the  utilization  of  engineering 
assistance  of  a  high  order  but  there  appears  to  be  no  other  method 
of  securing  data  which  will  give  a  satisfactory  assessment  as 
compared  with  real  estate  generally. 

A  committee  of  the  l^ational  Tax  Association,  appointed  to  con- 
sider this  problem  submitted  a  strong  report  in  1920  in  favor 

*  Manual  for  Jnaruction  of  Aasesaora,  New  York  State  Tax  BvUetin,  vol.  1,  no.  3. 


159 


of  the  taxation  of  mining  property  in  the  same  manner  as  other 
real  estate,  the  values  to  be  determined  on  the  basis  of  pro- 
fessional engineering  appraisals.* 

Conclusion. —  It  is  clear  that  the  Legislature  must  soon  give 
serious  consideration  to  the  problem  of  the  taxation  of  mines 
and  mineral  lands.  The  present  system  is  not  working  as  intended, 
due  to  the  shortcomings  of  the  local  assessors.  The  practical 
result  is  that  mineral  lands  are  favorably  treated  as  compared 
with  other  real  estate.  If  the  Legislature  desires  to  eliminate 
this  difference  of  treatment  a  reform  of  assessment  methods  is 
necessary.  The  adoption  of  the  Committee's  recommendation  f 
with  regard  to  the  centralization  of  assessment  would  aid  in  cor- 
recting this  situation.  On  the  other  hand  even  if  the  home-rule 
provision  of  the  Constitution  remains  unchanged,  it  would  be 
possible  for  the  Tax  Commission,  if  furnished  with  the  proper 
staff,  to  render  expert  aid  to  the  local  assessors  in  valuing  such 
property. 

In  case  the  Legislature  believes  that  the  mines  should  be  more 
liberally  treated  than  other  businesses  using  real  estate,  it  would 
be  well  to  do  so  frankly  rather  than  to  perpetuate  a  situation  in 
which  the  law  and  the  practice  are  at  variance  with  each  other. 
A  policy  of  subsidizing  the  mines  could,  in  our  opinion,  be  best 
carried  out  through  a  system  of  moderate  output  taxes.  The 
problem  is  a  complicated  and  difficult  one  and  should  be  more 
fully  analyzed  and  considered  before  definite  action  is  taken. 

Forest  taxation. —  In  the  case  of  wooded  and  reforested  land 
the  State  has  definitely  adopted  a  policy  of  taxation  which  aims 
to  encourage  conservation  and  the  increase  of  timber  resources. 
The  laws  designed  to  accomplish  these  objects  are  found  in 
operation  to  be  almost  completely  ineffective  and  the  S'tate  faces 
the  necessity  of  making  a  new  study  of  the  problem  and  formulat- 
ing some  new  plan  which  will  meet  the  situation  in  a  more  satis- 
factory manner. 

Forests  and  the  Lumber  Industry  in  !N'ew  York  State. — • 
!N"early  one-half  of  the  area  of  ^NTew  York  State,  or  about  14,800,- 
000  acres,  is  regarded  by  the  State  Conservation  Commission  as 


*  Proceedings  of  the  National  Tax  Association,  1920,  p.  405. 
t  Cf.  supra,  p.  58  et  seq. 


160 

forested  or  potential  forest  land.*  In  spite  of  this  New  York 
which  m  1850  produced  more  lumber  than  any  other  State,  ranked' 
only  twentj-ifth  among  lumber  producing  states  in  1920,+  with 

400  000,000  board  feet  a  year,*  with  about  an  equal  quantity  of 
cord  wood.  More  than  one-third  of  the  cut  consists  of  white  pine 
and  hemlock.  There  is  very  little  virgin  forest  left  in  the  State 
and  sixty-two  per  cent  of  the  forest  area  is  suitable  for  fuel 
and  acid  wood  only.§  The  State  itself,  with  a  forest  preserve  of 
about  1,900,000  acres,  is  the  largest  owner  of  merchantable  timber. 
The  largest  private  holding,  belonging  to  a  pulp  and  paper  com- 
pany, IS  something  over  200,000  acres. 

The  largest  part  of  the  standing  timber  is  in  the  Adirondacks 
and  CatskiUs,  but  «  potential "  forest  land  is  scattered  through- 
out the  State.  The  need  for  conservation  and  reforestation  in 
New  York,  as  in  the  neighboring  New  England  states,  is  very 
great,  and  the  problem  of  forest  taxation  is  inextricably  bound 
up  with  the  conservation  problem. 

Forest  Taxation  m  the  Other  States.— Most  of  the  states 
tax  forests  ,n  the  same  way  as  other  real  estate  under  the  propertv 
tax  Some  grant  total  exemptions  of  land  and  trees,  or  assess  the 
J  and  at  a  nominal  sum  for  periods  of  ten  to  thirty  years  if  the 
owner  of  the  wooded  or  reforested  area  complies  with  certain 
stated  conditions.  Other  states  exempt  only  the  timber  for  a  defin- 
ite period,  and  still  others,  under  certain  conditions,  offer  boun- 
ties or  tax  rebates.  In  all  of  these  cases  the  purpose  is  to  en- 
courage conservation  of  timber  resources  and  reforestation 

For  the  most  part  these  exemptions  have  had  little  effect,  for 
the  value  of  the  exemption  offered  has  not  been  sufficient  to  make 
It  worth  while  for  the  owners  of  forest  land  to  comply  with  the 
provisions  of  the  law.  In  a  few  cases  there  has  been  some  small 
encouragement  to  reforestation.  In  more,  such  exemptions  have 
discriminated  unfairly  in  favor  of  the  owner  of  timber  land. 

T'ann  woodlots.  2,100,000  acres 

Unimproved  land  in  faming  sectioM.  V.'. i'lS^'SS^  ^^""^ 

^  t  ouu ,  000  acres 


Total , 

The  total  is  47  per  cent  of  the  total  area  of  the  state 
.TuL^';1?20^''^  ''''^^^^'  -f   Ai^riculturerFl^^t    Service, 
t  New  Yoric  State  Lumber  Cut  (in  1000  feet): 

,„       1918 328,841  1919  ^w  rr^ 

§  Report  on  Timber  Depletion,  p.  1«.  ^^^'^^^ 


14,800,000  acres 


.f 


< 


i   V 


Report    on     Timber     Depiction 
1920 410.909 


4        h 


161 


A  few  eastern  states,  notably  Connecticut,  Massachusetts  and 
New  York,  wliere  the  problem  of  reforestation  is  pressing,  have 
endeavored  to  encourage  reforestation  by  means  of  deferred  taxes, 
and  at  the  same  time  to  impose  an  equal  burden  on  the  owners 
of  timber  land  and  the  owners  of  other  real  estate. 

Local  Assessment  of  Fokest  Land  in  New  Yokk  State. — 
Most  of  the  forest  area  of  New  York,  including  the  State  forest  pre- 
serve, is  taxed  as  other  property  under  the  general-property  tax. 
Standing  timber  is  real  estate  and  is  to  be  assessed  as  such  by 
the  local  assessors.  This  method  of  taxation  has  not  encouraged 
premature  cutting  to  any  extent  in  this  State,  for,  because  of 
under-assessment,  the  tax  burden  has  not  been  heavy.  Timber 
land  is  usually  assessed  at  a  low  rate,  often  merely  nominal,  and 
the  larger  part  of  the  tax  burden  has  been  shifted  to  the  owners 
of  other  property.  If,  as  is  frequently  claimed,  this  practice  is 
essential  to  the  consei'vation  of  our  forests,  this  fact  should  be 
recognized  frankly,  and  provided  for  by  law.  The  Legislator,  and 
not  the  local  assessor,  should  determine  the  degree  to  which 
forests  should  be  subsidized  and  the  amount  of  taxes  to  be  imposed 
on  forest  land. 

Laws  for  Special  Taxation  OiF  Forests  in  New  York. — 
Special  laws  were  passed  in  1912  to  provide  for  exemptions  and 
deferred  taxation  of  wooded  and  reforested  land  under  certain 
conditions.     The  provisions  of  these  laws  are  as  follows: 

First,  total  exemption  from  the  property  tax  is  granted  to 
reforested  land,  under  certain  conditions.  The  area  reforested 
may  be  from  one  to  one  hundred  acres,  and  it  must  lie  more  than 
twenty  miles  from  any  city  of  the  first  class,  more  than  five 
miles  from  any  city  of  the  second  class,  and  more  than  one 
mile  from  any  city  of  the  third  class.  It  must  be  planted  accord- 
ing to  conditions  specified  in  the  law,  and  must  be  duly  registered. 
The  exemption  is  for  thirty-five  years  from  the  date  of  planting. 
After  that  time  the  land  is  taxed  on  bare  land  value  at  the  gen- 
eral property  tax  rate.  No  tax  is  placed  on  the  timber  until  cut, 
"when  a  tax  of  five  per  cent  on  stumpage  value  must  be  paid. 
Land  which  has  been  underplanted  is  entitled  to  a  fifty  per 
cent  exemption  under  the  same  conditions.* 

♦  Tax  Law,  sec.  lf>. 


p 


162 

Second,  woodlots  of  from  one  to  fifty  acres,  and  outside  of  urban 
areas  as  defined  above,  are  entitled  to  total  exemption  on  the 
timber  value  as  long  as  no  timber  is  sold.  The  land  is  assessed 
at  the  same  rate  as  similar  unforested  land,  but  the  assessed 
value  shall  not  exceed  ten  dollars  per  acre.  Whenever  the  cut 
is  in  excess  of  domestic  need  it  shall  be  subject  to  a  tax  of  five 
per  cent  on  stumpage  value.* 

Third,  areas  in  excess  of  five  acres  and  suitable  for  reforestation, 
and  also  outside  of  the  limits  prescribed  above,  are,  under  certain 
conditions  of  planting,  exempt  so  far  as  timber  values  are  con- 
cerned for  thirty-five  years.  The  land  is  assessed  and  taxed  on 
the  bare  land  value  at  the  same  rate  as  similar  lands  in  the 
district.  After  thirty-five  years  both  land  and  timber  are  sub- 
ject to  the  usual  general  property  tax.f 

Forest-Products  Taxes  in  Other  States. — Laws  similar  to 
that  described  in  the  preceding  paragraph  exist  in  Massachusetts. 
Connecticut,  Michigan,  Pennsylvania,  and  Vermont,  but  in  none 
of  these  is  total  exemption  granted  to  the  land,  and  there  is  con- 
sequently no  limited  period  of  exemption.:]: 


*  Tax  Law,  sec  17. 
New  York  Conaenalion  Law,  sec.  57. 
Forest  Taxation  in  States  Employing  Products  Tax: 


I 


State 

Forest  land  to  which 
it  applies 

Amount  of  exemp- 
tion 

Period  of 
exemption 

Rate  of  products 
tax 

New  York 

Tracts  of  1  to  100  acres 
outside  urban  areas 
and  planted  accord- 
ing to  specifications. 

Total  land  and  timber 
value  exempt. 

Land  35 
years. 
Timber 
until  cut. 

Five  per  cent 

Connecticut . . . 

Tracts  of  5  acres  and 
over  suitable  for  for- 
est planting  and  not 
valued  at  over  $25 
per  acre. 

No  exemption  of  land, 
but  tax  rate  limited 
to  10  mills  and  no  re- 
assessment    for     50 
years.    Complete 
exemption  of  timber 
growth  after  classi- 
fication. 

Until  cut. 

Graduated  up  to  ten 
per  cent  on  timber 
classified  and  exempt 
from  date  of  plant- 
ing. 

Massachusetts . 

Tracts  of  3  acres  and 
over  registered  and 
planted  according  to 
specifications. 

No  exemption  of  land. 
Complete  exemption 
of     timber     growth 
after  classification. 

Until  cut. 

Graduated  up  to  6  per 
cent  on  timber  classi- 
fied and  exempt  from 
date  of  planting. 

Michigan 

Tracts  up  to  one-eighth 
of  160  acre  tract  one- 
half  of  which  is  im- 
proved,   under    cer- 
tain   conditions    of 
planting. 

Land  value  in  excess  of 
$1  per  acre  exempt. 
Complete  exemption 
of     timber     growth 
after  classification. 

Until  cut. 

Five  per  cent. 

Pennaylvania .  . 

Tracts    under    certain 
conditions  of  plant- 
ing     accepted      as 
"  auxiliary  forest  re- 
serve." 

Land  value  in  excess  of 
f  1  per  acre  exempt. 
Complete  exemption 
of  timber. 

Until  cut. 

Ten  per  cent. 

Vermont 

Tracts  registered  and 
planted  according  to 
specifications. 

Tiand  value  in  excess  of 
$3  per  acre.      Com- 
plete  exemption    of 
timber  growth  after 
classification. 

Until  cut. 

Graduated  up  to  10 
per  cent  on  timber 
classified  and  exempt 
from  date  of  plant- 
ing. 

( 

^ 


A 


163 


Elaborate  provisions  are  made  for  the  transition  period  in  Con- 
necticut, Massachusetts  and  Vermont,  in  order  to  avoid  any 
immediate  reduction  in  local  assessments,  and  to  avoid  penalizing 
the  timber  owner  who  has  not  enjoyed  such  exemption  from  the 
time  of  planting  the  timber.  In  Pennsylvania  the  exemption 
applies  to  mature  timber  from  the  date  of  classification,  and  the 
State  reimburses  local  districts  for  any  reduced  assessments. 

Forest  Tax  Law  of  New  York  Ineffective  in  Operation. — 
Few  owners  of  timber  land  have  taken  advantage  of  the  New  York 
law  because  of  the  detailed  requirements  for  classification  and 
because  the  expense  of  reforestation  is  so  great  that  tax  exemption 
is  not  in  itself  adequate  compensation.  Less  than  1,300  acres 
had  been  classified  under  these  acts  in  1919,*  and  the  value  of 
land  so  exempted  was  placed  at  only  $18,440.f  The  results 
coincide  with  those  in  other  states.  None  of  the  exemptions  in 
any  of  the  states  seems  to  have  accomplished  its  purpose  in 
encouraging  reforestation.  Thus  far  the  compensation  of  exemp- 
tion has  been  insignificant  compared  with  the  cost  of  reforestation 
and  the  detailed  requirements  for  classification  to  obtain  exemp- 
tion have  made  the  laws  impotent.  In  Vermont  one  company 
has  recently  classified  39,000  acres.  Aside  from  this  only  about 
1,000  acres  have  been  classified,  and  the  entire  40,000  acres  repre- 
sent less  than  eight-tenths  of  one  per  cent  of  Vermont's  forest 
land.  In  Pennsylvania  12,600  acres  have  been  classified,  or  less 
than  one-tenth  of  one  per  cent  of  forest  land.  In  Connecticut 
2,462  acres  or  less  than  two-tenths  of  one  per  cent,  and  in 
Massachusetts  1,931  acres  or  about  one-tenth  of  one  per  cent  have 
been  classified.  New  York  has  the  smallest  amount  of  any  of 
these  states, —  1,300  acres  or  one-one-hundredth  of  one  per  cent. 

Conclusion. — Until  timber  values  increase  beyond  their  pres- 
ent worth  it  would  appear  that  direct  encouragement  to  reforesta- 
tion must  come  in  other  ways  than  through  tax  exemption.  In 
general  it  would  seem  desirable  to  maintain  the  burden  of  forest 
taxation  equal  with  that  on  other  real  estate  unless  it  becomes 
apparent  that  such  taxation  would  interfere  with  our  policy  of 
conservation  and  reforestation. 


*  Report  of  New  York  Conservation  CommiKKwn,  1919. 
t  Report  of  Nev.'  York  Tax  Commission,  1919. 


.! 


164 

Very  little  uncut  forest  remains  in  the  state,  and  the  problem 
of  forest  taxation  is  mainly  one  of  taxing  deforested  land  or  land 
with  growing  timber  which  has  no  immediate  market  value. 
The  time  has  passed  in  New  York  when  the  owners  of  deforested 
land  let  it  go  for  taxes.  Such  land  has  a  very  real  market  value. 
This  should  be  taken  into  account  in  formulating  the  tax  policy. 

The  problem  of  taxing  growing  timber  is  not  so  simple.  Tim- 
ber has  usually  been  regarded  as  real  estate  and  taxable  as  such. 
As  long  as  most  of  the  standing  timber  was  virgin  timber,  and 
the  owners  had  incurred  none  of  the  expenses  of  growing  it,  there 
were  strong  reasons  for  taxing  it  in  this  way.  In  cases  where 
timber  has  been  planted,  however,  there  is  some  argument  for 
exempting  it  as  farm  crops  are  exempted,  and  taxing  only  the 
bare  laud  value,  but  this  position  is  not  unassailable.  Difficulties 
arise  in  valuing  the  bare  land  apart  from  the  increasing  value  of 
the  timber  crop. 

]^o  undue  exemption  should  be  allowed,  but  conservation  and 
reforestation  are  of  very  great  importance,  and  while  the  effect 
of  the  general  property  tax  on  deforestation  has  probably  been 
overemphasized,  no  policy  of  forest  taxation  should  be  adopted 
which  will  either  discourage  reforestation  or  encourage  prema- 
ture cutting. 

Among  the  suggestions  which  the  Committee  has  under  con- 
sideration are  the  following: 

1.  That  classification  of  timber  land  for  the  purpose  of 
exemption  be  abolished; 

2.  That  timber  land  be  taxed  as  other  property  on  its 
bare  land  value; 

3.  That  timber  be  assessed  at  its  full  market  value  and 
taxed  under  the  general-property  tax,  the  State  Tax  Com- 
mission in  cooperation  with  the  state  forester,  laying  down 
more  definite  rules  of  assessment  than  prevail  at  present 
for  the  aid  and  guidance  of  local  assessors ;  or 

4.  That  mature  timber  be  assessed  at  its  full  market 
value  and  taxed  under  the  general  property  tax,  but  the 
value  of  growing  timber  should  be  exempted;  or 

5.  That  all  existing  timber  be  taxed  at  its  present  value 
but  that  anv  future  increases  in  the  value  of  timber  be 


165 

exempted  from  assessment  and  a  graduated  yield  tax  should 
be  introduced  for  the  transition  period,  the  final-yield  tax 
being  imposed  at  the  present  rate  of  five  per  cent ;  or 

6.  That  timber  be  classified  as  a  growing  crop  and  ex- 
empted from  all  taxation. 
It  should  be  noted  that  while  the  immediate  fiscal  aspects  of 
the  problem  are  inconsiderable,  the  economic  and  social  effects 
of  the  taxation  of  forest  lands  are  of  such  great  importance  that 
the  policy  of  the  State  must  be  foimulated  with  the  greatest 
care. 

The  Administration  of  the  Inheritance  Tax 

The  inheritance  tax  is  now  one  of  the  largest  sources  of  state 
revenue^  and  the  problem  of  its  administration  is  of  correspond- 
ing importance.  There  is  considerable  sentiment  in  the  State 
in  favor  of  a  higher  degree  of  centralization  in  the  administra- 
tion of  this  tax  and  the  Committee  believes  that  future  progress 
probably  lies  in  this  direction.  The  experience  of  other  states 
with  this  problem,  however,  does  not  seem  to  lead  to  a  clear  and 
definite  conclusion  on  this  point.  This  Committee  has  coop- 
erated with  the  Tax  Commission  and  the  State  Administration 
in  the  development  of  a  tentative  plan  for  reforming  the  pro- 
cedure in  this  state. 

Present  practice. —  Under  the  present  practice  the  transfer 
tax  proceeding  is  from  its  institution  a  judicial  proceeding.  The 
surrogate  has  jurisdiction  of  the  determination  of  all  questions 
involved  and  ultimately  fixes  the  amount  of  the  tax.  Proceed- 
ings are  commenced  voluntarily  by  the  executor  or  any  one  inter- 
ested in  the  estate,  by  the  surrogate  of  the  county  of  his  own 
motion,  or  by  the  Tax  Commission  through  its  attorney.  The 
fact  that  the  property  cannot  be  transferred  until  the  tax  is  paid 
usually  makes  it  unnecessary  for  the  state  officials  to  take  the 
initiative.  If  the  tax  is  paid  within  six  months  a  discount  uf 
five  per  cent  on  the  amount  of  the  taxes  is  allowed  and  if  not 
paid  within  eighteen  months  a  penalty  of  ten  per  cent  per  annum 
from  the  date  of  death  accrues. 

Upon  receiving  the  petition  the  surrogate  enters  an  order  desig- 
nating an  appraiser.    Under  the  existing  system  salaried  apprais- 


► 


♦  Cf.  supra,  p.  22. 


\>:i 


166 

ers  are  appointed  by  the  Commissioii  in  the  larger  counties  and 
in  the  other  counties  the  county  treasurers  act  in  the  capacity. 
The  appraiser  conducts  a  hearing,  takes  testimony  if  necessary, 
reports  the  value  to  the  surrogate  and  to  the  attorney  of  the 
Commission.  The  report  is  confirmed  by  the  surrogate,  usually 
pro  forma,  and  an  appeal  may  then  be  taken  from  the  surrogate 
as  an  assessing  officer  to  the  surrogate  as  a  judicial  offixjer,  and 
can  then  be  carried  up  through  all  of  the  courts  to  the  Court  of 
Appeals  and  in  some  cases  to  the  Supreme  Court  of  the  United 

States. 

Criticisms  and  suggestions. —  The  procedure  of  thus  formally 
designating  an  appraiser,  whose  report  has  to  be  considered  by 
the  Tax  Commission  and  by  the  attorney  of  the  estate,  and  sub- 
mitted back  and  foith  a  number  of  times  before  transmission  to 
the  surrogate,  accompanied  by  much  formality  in  the  Surrogate's 
Court,  results  in  delay  in  administration.  In  the  great  major- 
ity of  estates,  probably  ninety  per  cent,  there  is  no  controversy 
as  to  the  value  of  the  transfer  or  the  amount  of  the  tax.  In  such 
cases  there  seems  to  be  no  necessity  for  going  through  this  elabo- 
rate procedure  wherein  the  appraiser  acts  as  an  intermediary 
between  the  representative  of  the  estate  and  the  attorney  of  the 
Tax  Commission.  If  the  report  of  the  representative  of  the 
estate  were  made  directly  to  the  Tax  Commission,  after  a  con- 
ference with  the  attorney  for  the  estate,  and  the  taking  of  testi- 
mony if  necessary,  it  is  believed  that  much  greater  expedition 
woidd  be  accomplished  in  the  settlement  of  the  tax  in  the  vast 
majority  of  estates.  It  would  be  necessary,  of  course,  to  provide 
for  full  notice  to  interested  parties,  and  for  a  judicial  review  in 
eases  where  an  agreement  cannot  be  reached. 

To  facilitate  the  administration  of  the  transfer  tax  the  follow- 
ing tentative  suggestions  are  submitted: 

The  representatives  of  the  decedent  shall  file  with  the  attorney 
of  the  Tax  Commission  in  the  county  of  the  surrogate  having 
jurisdiction,  or  if  no  surrogate  has  jurisdiction  with  the  Tax 
Commission,  two  copies  of  inventory  and  report  giving  a  list  of 
the  assets  of  the  estate,  the  value,  the  distribution,  the  names 
addresses  and  relationship  of  transferees,  a  copy  of  the  will  or 
deed  of  trust,  and  such  other  information  as  the  Commission  may 
require.     This  information  shall  be  filed  on  a  form  supplied  by 


. 


•     » 


167 

the  Tax  Commission  within  six  months  after  the  appointment  jf 
such  representative  unless  the  time  is  extended  by  consent  or  an 

order  of  the  surrogate. 

The  Commission  may  require  a  supplemental  report,  and  the 
Commission  or  its  attorney  may  subpoena  witnesses  and  compel 
testimony.  Conferences  may  be  had,  if  desired,  by  the  repre- 
sentative with  the  Commission  or  its  attorney. 

The  Commission  shall  determine  from  the  inventory  and  other 
data  before  it  the  value  of  the  estate,  of  the  several  interests 
transferred,  and  the  amount  of  tax  on  each,  and  file  the  report 
with  the  surrogate  having  jurisdiction.  In  the  case  of  non-resi- 
dents, if  no  surrogate  has  jurisdiction,  the  report  shall  be  filed 
with  the  surrogate  selected  by  the  Commission. 

The  surrogate  shall  cause  notice  of  the  filing  of  the  report  and 
the  assessment  of  the  tax  to  be  served  on  all  persons  interested 
including  guardians  and  committees.     On  a  date  to  be  specified 
in  the  notice,  the  surrogate  shall  hear  all  parties  interested  and 
may  take  proofs  in  reference  to  the  value  and  the  amount  of  the 
tax.     All  questions  of  law  and  fact  are  to  be  considered  at  the 
hearing.     The   surrogate  may  confirm  the   report,   modify   and 
confirm  the  report  or  order  a  new  report  by  the  Commission  in 
accordance  with  the  findings  of  fact  or  principle  laid  down  by 
him.     The  same  proceedings  shall  apply  in  case  of  a  new  report 
from  the  Commission. 

If  necessary,  the  surrogate  may  designate  an  appraiser  from 
standing  appraisers  appointed  by  the  Commission  who  shall 
receive  compensation  for  actual  services  only,  one-half  of  which 
shall  be  paid  by  the  State  and  the  other  half  by  the  estate. 

The  order  of  the  suiTogate  confirming  the  report  shall  be  final 
on  all  questions  of  fact.  Appeals  shall  be  to  the  appellate  divi- 
sion on  questions  of  law  only. 

The  adoption  of  the  plan  outlined  would  involve  the  elimina- 
tion of  the  salaried  appraisers  in  several  counties  and  the  elimina- 
tion of  the  county  treasurers  as  appraisers  in  the  other  counties. 
It  should  avoid  a  multiplicity  of  orders  in  the  surrogate's  court. 
The  appraiser  now  stands  between  the  attorney  of  the  State  and 
the  attorney  of  the  estate.  The  report  is  transmitted  first  to  one 
and  then  to  the  other  involving  great  delay  before  it  goes  to  the 
surrogate.      The    Commission   under   the   suggested   plan   would 


't 


M 


i    ! 


168 

come  immediately  in  contact  with  the  attorney  for  the  estate,  and 
in  ninety-nine  cases  out  of  one  hundred  the  tax  would  probably 
be  assessed  as  mere  routine. 

Miscellaneous 

The  apportionment  of  state  taxes  to  the  localities. — The  Com- 
mittee believes  that  the  time  is  near  when  it  will  be  necessary  lo 
face  squarely  the  questions  of  the  principles  involved  in  the  dis- 
tribution to  the  localities  of  the  taxes  collected  by  the  State. 

At  present  the  localities  share  in  the  yield  of  the  personal 
income  tax,   the   income  tax  on  mercantile   and  manufacturing 
companies,  and  the  motor-vehicle  fees.     The  basis  of  apportion- 
ment in  each  case  is  different.     The  recommendations  made  by 
this  Committee  raise  questions  regarding  the  share  of  the  locali- 
ties in  the  proposed  net  income  taxes  on  banks  and  financial  insti- 
tutions, the  proposed  gross-net  tax  on  public  utilities,  the  proposed 
new  taxes  on  motor  vehicles  and  gasoline,  and  the  proposed  new 
unincorporated  business  tax.     heedless  to  say,  the  interests  oi 
the  localities  must  be  carefully  safeguarded,  and  any  plan  must 
assume  that  the  localities  will  continue  to  receive  as  much  revenue 
as  they  now  obtain.     But  the  Committee  is  considering  whether 
it  would  be  best  (1)  to  assign  the  entire  yield  of  certain  of  the 
taxes  to  the  localities,  thus  separating  the  sources  of  revenue;  or 
(2)  to  share  the  proceeds  of  the  various  taxes  on  varying  specific 
bases,  or  (3)  to  pool  the  proceeds  of  these  taxes  in  a  general  Sub- 
vention Fund,  from  which  fund  the  localities  shall  be  allowed  to 
draw  in  accordance  with  a  more  consistent  set  of  principles  than 
those  which  now  govern  the  allocation  of  the  taxes  which  are  at 
present  distributed  back  to  the  localities.     This  problem  is  one 
which  will  assume  greater  and  greater  importance  as  the  tax  sys- 
tem of  the  State  develops.     It  does  not  assume  an  acute  form  at 
present  but  the  Committee  believes  that  a  study  should  be  made 
at  once  of  the  entire  question  and  that  an  attempt  l)e  made  to 
formulate  the  principles  which  should  govern  the  administration 
of  a  Subvention  Fund,  since  that  is  the  form  which  the  solution 
appears  most  likely  to  assume. 

Simplification  and  codification  of  the  tax  law. —  The  manv 
amendments  which  have  been  made  since  the  last  general  revision 


•> 


169 

of  the  tax  law  have  left  the  code  in  a  confused  and  unclear  con- 
dition. Portions  of  the  law  are  obsolete  and  some  of  the  pro- 
visions are  conflicting.  If  the  Committee's  recommendations  are 
adopted,  it  is  reasonable  to  hope  that  the  tax  law  will  soon  reach 
a  condition  of  relative  stability  which  would  justify  a  careful 
and  thoroughgoing  revision  of  the  code. 

The  need  for  adequate  statistics. —  The  statistical  investiga- 
tions which  have  been  conducted  by  the  Committee  have  empha- 
sized the  need  for  adequate  tax  statistics.  It  is  axiomatic  that  a 
tax  system  should  be  based  upon  exact  knowledge  of  the  wealth 
and  tax-paying  ability  of  the  different  elements  in  the  economic 
life  of  the  State,  and  that  serious  inequalities  of  burden  should 
not  be  allowed  to  develop.  For  the  guidance  of  the  Legislature 
in  framing  a  just  tax  system,  and  in  determining  the  burden  of 
taxes  upon  different  elements  in  the  community,  complete  sta- 
tistical information  should  be  readily  available.* 

Decision  as  to  the  statistics  which  should  be  compiled  and  cur- 
rently published  by  the  Tax  Commission  should  be  made  after  a 
special  study  of  the  problem,  and  after  consultation  between  all 
interested  departments  of  the  State  government  and  associations 
of  tax  experts.  The  value  of  the  statistics  at  present  gathered 
should  be  carefully  weighed,  and  the  publication  of  facts  not  of 
use  should  be  discontinued.  That  certain  additional  facts  not 
now  compiled  should  be  currently  published  has  been  revealed  by 
the  work  of  the  present  Committee. 

These  chansces  mav  call  for  minor  alterations  in  organization, 
and  the  creation  of  a  small  statistical  staff  within  the  Tax  Com- 
mission. No  material  change  would  be  necessary  and  no  con- 
siderable expense  involved  in  such  a  program.  Since  material 
bearing  closely  on  related  subjects  is  gathered  by  other  depart- 
ments of  the  State  government,  an  organization  plan  should  pro- 
vide for  collaboration  ])etween  departments  in  the  compilation 
and  publication  of  these  statistics. 


*  As  an  example  of  the  utility  of  such  fii^res  reference  may  be  made  to  the  need  for  localized 
income  statistics  at  the  present  time.  Such  localized  data  would  be  of  ven'  material  assistance  in 
determining  the  relation  between  local  expenditures  and  the  wealth  and  income  of  given  localities. 


r  I*  tM^  t^  -liT    '  i 


ip 


PART  TWO 

A  STATISTICAL  ANALYSIS  OF  THE  TAX  BURDEN  ON 
CORPORATIONS  IN  THE  STATE  OF  NEW  YORK 

By 

FREDERICK  C.  MILLS 

Assisted  By 
DONALD  H.  DAVENPORT 


II 


I 


'  I 


,■ 


Object  and  Scope'^ 

Object  of  the  investigation. —  This  report  summarizes  the  re- 
sults of  an  investigation  undertaken  for  the  purpose  of  deter- 
mining the  relative  burden  of  present  taxes  on  corporations  in  New 
Dfork  State.  Under  the  existing  laws  different  types  of  corpora- 
tions are  taxed  on  different  bases.  Some  pay  in  proportion  to 
their  net  income.  Others  are  taxed  on  their  gross  earnings 
or  excess  dividends.  Taxes  on  certain  corporations  are  levied 
on  capital  stock,  or  on  capital,  surplus  and  undivided  profits. 
Combined  with  these  varying  classifications,  which  cut  across 
each  other  in  diverse  ways,  are  general  property  taxes  and  special 
franchise  taxes.  The  complicated  character  of  the  corporation 
tax  system  has  rendered  difiicult  a  ready  comparison  of  the  burden 
of  taxes  on  different  classes  of  corporations. 

An  attempt  is  made  in  the  following  pages  to  reduce  the  prob- 
lem to  quantitative  terms,  on  a  common  basis,  in  order  that 
effective  comparison  may  be  possible. 

Specifically,  the  following  have  been  the  ends  in  view: 

1.  The  compilation  of  available  data  on  the  capital  and  income 
of  different  types  of  corporations  in  New  York  State.  Where 
complete  aggregate  figures  could  not  be  obtained,  representative 
samples  were  studied. 

2.  The  assembling  of  all  available  information  concerning  the 
amounts  paid  in  taxes  to  the  State  of  New  York  under  existing 
laws  by  different  classes  of  corporations. 

3.  The  determination  of  the  burden  of  general  tax  charges  upon 
different  classes  of  corporations.  To  facilitate  comparison,  tax 
payments  have  been  reduced  to  a  common  basis,  in  so  far  as  this 
was  possible. 

4.  The  determination  of  the  burden  of  specific  taxes  upon  the 
different  classes  of  corporations  paying  them. 


*  The  Committee  desire  to  acknowledge  the  aid  which  has  been  given  in  the 
preparation  of  this  report  by  the  office  of  the  Commissioner  of  Intornal  Revenue. 
Washington,  D.  C,  the  Tax  Commission  and  the  Public  Service  Commission  of  the 
State  of  New  York,  the  office  of  the  Superintendent  of  Banks  and  the  office  of  the 
Comptroller  of  the  State  of  New  York.  The  heads  of  these  departments  and  the 
members  of  their  staflfs  have  rendered  valuable  assistance  in  this  work. 

[173] 


i    I 


174 

6.  The  assembling  of  such  additional  material  as,  in  conjunc- 
tion with  the  above,  might  be  of  use  to  the  Committee  in  framing 
proposals  for  changes  in  the  tax  system  and  in  determining  the 
practical  effects  of  such  changes. 

Scope  of  study  and  sources  of  information. —  For  the  purpose 
of  this  study,  the  corporations  in  the  State  have  been  grouped  into 
three  general  classes,  with  minor  subdivisions.  These  classes  are : 
(1)  Mercantile  and  Manufacturing  Corporations  taxed  under 
article  9-a  of  the  tax  law;  (2)  Public  Service  Corporations; 
(3)  Financial  Institutions.* 

The  problem  of  dealing  with  the  first  group  has  been  relatively 
simple;  in  that  these  corporations  pay  a  straight  tax  of  4%  per 
cent  on  their  net  income.  The  essential  problem  has  been  that 
of  reducing  the  complex  taxes  paid  by  the  other  two  groups  to 
such  terms  that  comparison  with  the  first  group  might  be  possible. 

Published  statistics  dealing  with  the  capital  and  income  of 
these  three  classes  of  corporations  in  New  York  State  have  been 
summarized  and  studied.  It  has  been  necessary,  in  addition,  to 
conduct  an  intensive  survey  of  all  banks,  trust  companies  and 
investment  companies  in  the  State,  and  of  a  representative  list 
of  public  service  corporations. 

The  sources  of  information  are  listed  in  detail  below: 

I.  General  sources,  all  classes  of  corporations. 
1.  United  States  Government  Departments. 

Treasury  Department;  Division  of  Internal  Revenue. 
Statistics  of  Income— 1916,  1917,  1918. 

In  addition  to  the  published  statistics  of  the  Division  of  Internal 
Revenue,  the  Secretary  of  the  Treasury,  upon  the  request  of 
this  Committee,  prepared  the  following  detailed  tables,  based 
upon  the  tax  returns  of  corporations  in  New  York  State: 
Table   1.    Showing  sources  of   corporate  income  and  nature  of 
deductions,  by  industrial  groups,  for  corporations  in  New 
York  State,  for  the  year  1918,  with  detailed  information 
for  the  following  sub-classes: 
Transportation  and  other  public  utilities: 
Steam  railroads. 
Electric  railways. 
Express  companies. 
Electric  light  and  power  companies. 
Gas  companies. 

Telephone  and  telegraph  companies. 
Water  works. 
All  other  public  utilities 
Total,  transportation  and  other  public  utilities. 

•  Insurance  companies  are  not  included  In  the  above  classification  of  financial 
instltntions.  The  results  of  a  later  investigation  of  the  burden  of  taxes  on  insur- 
ance companies  are  given  in  a  separate  section  below.     Cf.  infrn,  pp.  265-269. 


175 

Banking  and  related  business: 
National  banks. 
State  banks. 
Trust  companies. 
All    other    corporations   engaged    in   banking   and   related 

business. 
Total,  banking  and  related  business. 
Table  2.   Corporation  returns  —  Distribution  by  industries  for 

New  York  State,  for  the  year  1918. 

Table   3.   Aggregate   figures   for   banks   and   public   utilities   in 

New  York  State,  classified,  giving,  for  the  following  classes 

of  corporations: 

a.  Amounts  received  in  the  form  of  dividends  from  other 

corporations    subject    to    federal    income    tax,    in    the 

year  1918. 
6.  Amounts  received  as  non-taxable  interest  on  federal  bonds 
in  the  year  1918. 
Transportation  and  other  public  utilities: 
Steam  railroads. 
Electric  railways. 
Express  companies. 
Electric  light  and  power  companies. 
Gas  companies. 

Telephone  and  telegraph  companies. 
.    Water  works. 

All  other  public  utilities. 

Total,  transportation  and  other  public  utilities. 
Banking  and  related  business: 
National  banks. 
State  banks. 
Trust  companies. 
All    other    corporations    engaged    in    banking    and    related 

business. 
Total,  banking  and  related  business. 
Department  of  Commerce,  Bureau  of  the  Census. 

Census   of   Manufactures,    1909,   19'14.     Advance   sheets  of   1919 

Census. 
Census  of  Electrical  Industries,  1907,  1912,  1917. 
Financial  Statistics  of  State,  1915,  1917. 

Taxation    and    Revenue   Systems    of    State    and    Local    Govern- 
ments,  1914. 
2.  New  York  State  Government  Departments: 

Reports  and  records  of  the  State  Tax  Commission. 
Reports  and  records  of  the  State  Comptroller. 

Figures  in  all  published  reports  have  been  analyzed  and  addi- 
tional information  has  been  secured  from  the  original  records 
in  the  files  of  the  Tax  Commission  and  the  Comptroller. 
II.  Additional  Sources  of  Information,  Public  Service  Corporations. 

1.  Reports  and  records  of  the  United  States  Interstate  Commerce  Com- 

mission. In  addition  to  its  published  reports,  this  Commission 
permitted  the  Committee  to  utilize  its  valuation  figures  for  railroads 
in  New  York  State,  in  so  far  as  the  work  of  valuation  had  been 
completed. 

2.  Reports  and  records  of  the  Public  Service  Commission  of  the  State 

of  New  York. 
A  detailed  analysis  of  the  returns  to  this  Commission  by  public 
service  corporations  has  been  made.  All  public  utilities  in  the 
State,  the  returns  of  which  were  complete  for  the  ten-year 
period,  1911-1920,  have  been  included  in  this  study.  The  follow- 
ing is  a  classification  of  the  corporations  studied : 

Steam  railroads. 
Electric  railways. 


^1    i 


176 


177 


i 


Telephone  and  telegraph  corporations. 
Gas  and  electric  corporations: 

a.  Electric  light  and  power. 

b.  Gas  and  electric    ( combined ) . 

c.  Manufactured  gas. 

d.  Natural  gas. 

A  list  of  public  utilities*  consisting  of  all  those  whose  reports  with 
the  Public  Service  Commission  were  complete  for  the  ten-year 
period,  1911-1920,  was  circularized  in  order  that  certain  addi- 
tional information  might  be  obtained.  The  results  secured  are 
summarized  in  the  table  on  this  page. 
III.  Additional  Sources   of  Information,  Financial  Institutions. 

1.  Reports  and  records  of  the  CSomptroller  of  the  Currency. 

2.  Keports  and  records  of  the  Superintendent  of  Banks,  State  of  New  York. 

For  the  purpose  of  obtaining  certain  materia!  in  addition  to  that  obtained 
from  the  above  sources,  all  National  Banks,  State  Banks,  Savings 
Banks,  Trust  Companies,  and  Investment  Companies  in  the  State 
were  circularized.  A  statement  showing  the  response  to  the  question- 
naires sent  to  the  public  utilities  and  financial  institutions  follows: 

Replies  to  Questionnaires 


Type  of 
Corporation 


National  banks .  . 

State  banks ..... 

Trust  companies . 

Savings  banks . . . 

Invest.  compcuiieB 

Total 

Financial 

Institutions 

Steam  railroads. . 

Electric  railroads. . . 

Telephone,  tde- 
graph  and  cable 
companies 

Gas  and  electric 
companies 

Total  ] 

Public  } 

Utilities 


Totals . 


Num- 
ber of 
corpor- 
ations to 
which 
ques- 
tion- 
naires 
were 
sent 

Cor- 
rected 
list  ex- 
cluding 
corpor- 
ations no 
longer 
in  oper- 
ation 

Replies 

to 

Srst 

letter 

July, 

1921 

Per 

cent 
reoly- 
ing 
after 
first 
letter 

Total 
replies 

after 
seeomd 

letter 
August, 

1921 

Per 

cent 
reply- 
ing 
after 
second 
letter 

Total 
replies 
after 
third 
letter 
Septem- 
ber, 
1921 

495 
232 
100 
144 
35 

1  006 

50 
113 

89 
163 

415 

490 
232 
100 
143 
30 

995 

48 
112 

82 
143 
385 

235 
160 

60 
123 

12 

590 

13 
21 

26 

40 

100 

47.9 
69.0 
60.0 
86.0 
40.0 

59.3 

27.1 
18.75 

31.7 
28.0 
26.0 

363 
182 

79 
138 

15 

777 

29 
45 

54 

93 

221 

74.1 
78.4 
79.0 
96.5 
50.0 

78.1 

60.4 
40.2 

65.9 
65.0 
67.4 

458 
207 

97 
143 

27 

932 

39 
91 

68 
117 
315 

1.421 

1,380 

690 

50.0 

998 

72.3 

1,247 

Per 

cent 
reply- 
ing 
after 
third 
letter 


93.4 

89.2 

97.0 

100.0 

90.0 

93.7 

81.2 
81.2 


82.0 
81.8 
81.8 

90.3 


With  very  few  exceptions,  the  financial  institutions  and 
public  service  corporations  called  upon  were  prompt  to  co-operate 
with  the  Committee  in  its  work. 

Summary  of  Amiual  Taxes  Paid  by  Corporations 

The  following  brief  outline  of  the  taxes  paid  by  the  different 
classes  of  corporations  operating  in  New  York  State  will  serve 
as  a  background  for  the  later  discussion.  No  attempt  is  made  to 
explain  the  various  provisions  of  the  tax  law  in  detail. 


(.  ♦ 


A  —  Taxes  Paid  by  Business  Corporations. 

(The  term  "business  corporations"  covers  mercantile   and  manu- 
facturing corporations,  excluding: 

a.  Real  estate  corporations. 

b.  Holding  corporations. 

c.  Transportation  and  transmission  corporations. 

d.  Elevated  or  surface  railroads  not  operated  by  steam. 

e.  Waterworks  companies,  gas  companies    electric  or  steam  heat- 

ing, lighting  and  power  companies. 

f.  Insurance  corporations. 

g.  Banks,  State  and  national, 
h.  Savings  banks. 

i.  Trust  companies. 

j.  Investment  companies. 

See  article  9-a,  section  210,  Tax  Law). 

1.  Franchise  Tax  (article  9-a,  Tax  Law),  414  per  cent  on  net  income. 

(Minimum  tax  to  be  not  less  than  $10  and  not  less  than  one  mill 
upon  each  dollar  of  issued  capital  stock). 

(D^nition  of  net  income:  "total  net  income  before  any  deduc- 
tions have  been  made  for  taxes  paid  or  to  be  paid  to  the  Gov- 
ernment of  the  United  States  on  either  profits  or  net  income 
or  for  any  losses  sustained  by  the  corporation  in  other  fiscal 
or  calendar  years  whether  deducted  by  the  (Government  of  the 
United  States  or  not."    Section  208,  article  9-a,  Tax  Law). 

2.  General  Property  Tax   (articles  1-5  inclusive,  Tax  Law). 

(Business  corporations  are  taxable  on  real  property  and  certain 
fixed  equipment;   they  are  exempt  from  the  payment  of  taxes 
on   personal  property.      See   article   9-a,   sections    219-i,  219-j. 
Tax  Law ) . 
B  —  Taxes  Paid  by  Financial  Institutions. 

1.  State  and  National  Banks. 

a.  Bank  Stock  Tax  (article  1,  section  13,  article  2,  sections  23-24, 

Tax  Law ) . 
1   per   cent  on  value  of   shares    (total  value   of   shares  equal 
to  capital,  surplus  and  undivided  profits). 

b.  General  Property  Tax   (articles  1-5  inclusive.  Tax  Law). 

(Institutions  paying  the  bank  stock  tax  are  taxable  only  on 
real  property;  they  are  exempt  from  the  payment  of  taxes 
on  personal  property.     See  article  2,  section  24-c). 

2.  Trust  Companies. 

a.  Franchise  Tax  (article  9,  section  188,  Tax  Law). 

1  per  cent  on  capital,  surplus  and  undivided  profits  (based 
on  average  during  preceding  year ) . 

b.  General  Property  Tax. 

(On  real  property;  trust  companies  are  exempt  from  pay- 
ment of  taxes  on  personal  propertv.  See  article  9,  sec- 
tion 205,   Tax  Law). 

3.  Invefitment  Companies. 

a.  Franchise  Tax   (article  9,  section  188-a,  Tax  Law). 

1%  mills  for  each  dollar,  face  value,  of  capital. 
1  per  cent  on  surplus  and  undivided  profits. 

b.  General  Property  Tax. 

(On  real  property;  investment  companies  are  exempt  from 
payment  of  taxes  on  personal  property.  See  article  9,  sec- 
tion 205,  Tax  Law). 

4.  Savings  Banks. 

a.  Franchise  Tax  (see  article  9,  section  189,  Tax  Law). 

1  per  cent  on  par  value  of  surplus  and  undivided  earnings. 

b.  General  Property  Tax. 

(On  real  and  personal  property;  deposits  in  savings  banks 
exempt  from  taxation). 


II 


i 


I 


178 

5.  Insurance  Corporations  and  Surety  Companies. 

a.  Franchise  Tax  (article  9,  section  187,  Tax  Law). 

1  per  cent  on  excess  of  gross  amount  of  premiums  charged, 
over  deductions  allowed  by  law,  on  business  done  within 
this  State  during  previous  calendar  year. 

b.  General  Property  Tax   (on  real  and  personal  property). 
C  —  Taxes  Paid  by  Public  Service  Corporations. 

1.  Steam  Railroads.  .       ,  „^    „,       t       v 

a.  General  Franchise  Tax   (article  9,  section  182,  Tax  Law). 

(Franchise  tax  is  based  upon  the  capital  stock  of  the  corpo- 
ration. Tax  rate  variable,  depending  upon  dividend  rate, 
relation  of  assets  to  liabilities,  and  average  price  of  stock 

sold). 

b.  Additional  Franchise  Tax  (article  9,  section  184,  Tax  Law). 

One-half  of  1  per  cent  on  gross  intra-State  earnings  (not 
including  earnings  derived  from  business  of  an  interstate 
character ) 

c.  Special  Franchise  Tax  (article  2,  sections  44-49,  Tax  Law). 

(Tax  Commission  annually  determines  valuation  of  special 
franchises  subject  to  assessment  in  each  city,  town  or 
village.  Final  equalized  valuation  is  the  assessed  valuation 
on  which  all  taxes  based  upon  special  franchise  are  levied 
by  local  authorities.  Tangible  property  situated  upon 
streets,  highways,  public  places  or  public  waters  in  connec- 
tion with  the  special  franchise  is  taxed  with  such  franchise). 

d.  General  Property  Tax. 

(Real  and  personal  property,  excluding  that  which  is  assessed 
with  special  franchises,  is  taxed  under  this  head). 

2.  Telephone  and  Telegraph  Companies. 

(Taxed  upon  same  basis  as  steam  railroads). 

3.  Elevated  or  Surface  Railroads  not  operated  by  steam. 

a.  Franchise  Tax    (article  9,  section   185). 

1  per  cent  on  gross  earnings  from  all  sources  within  the  State. 

3   per   cent   upon   amount   of    dividends   declared   or   paid    in 

excess  of  4  per  cent  upon  actual  amount  of  paid-up  capital. 

b.  Special  Franchise  Tax    (article  2,   sections  44-49,  Tax  Law). 

(Same  as  steam  railroads). 

c.  General  Property  Tax  (same  as  steam  railroads). 

4.  Other  Transportation  Companies   (taxed  upon  same  basis  as  steam 

railroads).  .  ti    4.- 

5.  Waterworks  Companies,  Gas  Companies,  Electric  or  Steam  Heating, 

Lighting  and  Power  Companies. 

a.  Franchise  Tax   (article  9,  section  186). 

One-half   of   1   per   cent  on  gross  earnings   from  all  sources 

within  the  State. 
3  per  cent,  upon  amount  of  dividends  declared  or  paid  in  excess 

of  4  per  cent  upon  actual  amount  of  paid-up  capiial. 

b.  Special   Franchise  Tax    (article  2,   sections  44^9,   Tax  Law). 

(Same  as  for  steam  railroads). 

c.  General  Property  Tax   (Same  as  steam  railroads). 

D Taxes  paid  by  corporations  not  included  in  the  above  classes. 

1.  Realty  Companies.  „,       -r       x 

a.  General  Franchise  Tax   (article  9,  section   182,  Tax  Law). 

(Franchise  tax  based   upon  the  capital   stock  of  the  corpo- 
ration ) . 

b.  General  Property  Tax   (on  real  and  personal  property). 

2.  Holding  Companies. 

a.  General  Franchise  Tax   (article  9,  section  182,  Tax  Law). 

b.  General  Property  Tax   (on  real  and  personal  property). 


«    • 


(  « 


General  Considerations 

The  summary  of  the  existing  corporation  tax  laws  of  Xew 
York  State,  presented  above,*  indicates  the  diverse  bases  ou 
which  corporations  are  taxed.  The  chief  object  of  the  present 
investigation-  has  been  to  reduce  the  taxes  actually  paid  by  cor- 
porations to  a  common  basis  in  order  that  a  comparison  of  the 
relative  burden  might  be  facilitated. 

In  attempting  to  measure  the  relative  burden  of  taxes  a  double 
problem  is  involved.  In  the  first  place,  it  is  important  to  know 
how  a  system  of  taxation  affects  the  different  corporations  within 
a  given  group,  as,  for  instance,  to  determine  whether  a  given  tax 
falls  most  heavily  upon  small  or  large  institutions.  It  is  also 
important  to  determine  the  relative  weight  of  the  tax  burden  on 
different  classes  of  corporations,  such  as  business  corporations, 
public  utilities  and  financial  institutions.  The  pages  immediately 
following  are  devoted  to  a  consideration  of  this  double  problem. 

Net  income  has  been  adopted  as  the  standard  best  adapted  to 
the  measurement  of  tax  burden.f  For  each  class  of  corporation 
an  attempt  is  made  to  express  the  amount  paid  in  taxes  as  a  per- 
centage of  net  income,  though  the  original  levy  may  have  been 
upon  an  entirely  different  base.  Inasmuch  as  business  corpora- 
tions in  New  York  State  are  now  taxed  upon  net  income,  the 
problem  has  been  that  of  reducing  to  the  same  base  the  taxes  paid 
by  other  classes  of  corporations. 

At  the  outset  it  is  necessary  clearly  to  define  the  term  ^'net 
income,"  and  to  indicate  certain  divergent  uses  of  the  term.  Net 
income,  as  defined  in  Article  9-a  of  the  New  York  State  tax 
law,  dealing  with  the  taxation  of  business  corporations,  "  means 
the  total  net  income  (as  reported  to  the  Commissioner  of  Internal 
Revenue  of  the  United  States)  before  any  deductions  have  been 
made  for  taxes  paid  or  to  be  paid  to  the  government  of  the  United 
Stiates  on  either  profits  or  net  income  or  for  any  losses  sustained  by 
the  corporation  in  other  fiscal  or  calendar  years,  whether  deducted 
by  the  government  of  the  United  States  or  not "  (Art.  9-a,  §  208. 

•  Supra,  p.  177  et  aeq. 

t  Cf   The  (lisrnssion  of  the  relation  between  taxes,  nt't  income  and  pross  income. 
Tnfra,  pp.  263-265. 

Il<9] 


1^' 


180 

Tax  Law).  The  basis  for  the  determination  of  net  income  for 
state  purposes  is  thus,  fundamentally,  net  income  as  defined  in 
the  federal  revenue  act.  Certain  items  exempt  from  taxation 
under  the  federal  law  are  taxable  under  the  New  York  law. 
These  are : 

(1)  Dividends  from  other  corporations  subject  to  the  federal 
income  tax  and 

(2)  Non-taxable  interest  on  federal  bonds. 

With  the  exception  of  the  net  loss  provision  noted  above  and 
the  inclusion  of  these  two  items,  taxable  net  income  in  New  York 
State  corresponds  almost  exactly  to  income  taxable  under  the 
federal  law.* 

This  definition  of  net  income  has  been  adopted  in  the  tables 
relating  to  financial  institutions.  All  the  financial  institutions 
in  the  state  (excluding  insurance  corporations)  were  requested 
to  furnish  the  Committee  with  information  as  to  the  amount  re- 
turned as  net  income  to  the  Commissioner  of  Internal  Kevenue, 
the  amount  received  as  dividends  from  other  corporations  subject 
to  the  federal  income  tax,  the  amount  received  in  non-taxable  in- 
terest on  federal  bonds,  and  the  amount  deducted  for  losses  sus- 
tained in  other  years. 

By  adding  these  four  items  a  figure  almost  exactly  equivalent 
to  the  net  income  on  which  business  corporations  are  taxed  in 
New  York  State  could  be  obtained.  The  returns  received  from 
the  financial  institutions  were  satisfactory  except  in  regard  to 
the  last  item  —  deductions  for  losses  sustained  in  other  years.  As 
some  institutions  returned  answers  to  this  question  which  were 
obviously  incorrect,  none  of  these  returns  was  used.  Fortunately 
this  item  was  so  small  as  to  be  negligible  in  the  case  of  financial 
institutions.  The  results,  therefore,  are  not  sensibly  affected 
by  the  failure  to  take  account  of  it. 

A  direct  and  accurate  comparison  af  the  tax  burden  upon  the 
financial  institutions  and  business  corporations  is  thus  possible. 

*  For  the  details  of  the  federal  definUlon.  see  Re?nlations  45.  relatinjr  to  th-e 
Income  and  War  Profits  and  Excess  Profits  Tto  nader  the  Revenue  Act  of  1M8. 

Strictly  speakirig,  the  statement  as  given  above  is  subject  to  this  additional 
dualiflcation  :  That  claims  in  abatement  nnder  Section  234  (a-14)  of  the  Federal 
Revenue  Act  of  1918  may  not  be  deducted  in  arriving  at  net  income  for  purposes 
of  the  state  tax  until  a  final  dieteviniBai^ioii  of  the  amount  is  made.  Thp  section 
cited  permits  a  deduction  in  the  federal  assessment  based  upon  a  loss  due  to  a 
material  r«Hluct1on  in  the  value  of  an  inventory  at  the  end  of  1918.  The  State 
does  not  forbid  the  deduction  of  such  losses,  when  finally  determined,  but  does 
prohibit  their  deduction  on  the  tentative  basis  permitted  b.v  the  federal  government. 


^ 


tkt 


181 


The  difiiculties  are  greater  with  regard  to  public  utilities.  In 
determining  the  burden  of  taxes  upon  this  class  it  was  essential 
to  secure  a  base  period  covering  eight  or  ten  years  in  time,  since  the 
condition  of  the  public  service  corporations  during  the  last  several 
years  has  been  somewhat  abnormal.  The  reports  submitted  an- 
nually to  the  Public  Service  Commission  of  the  State  of  New 
York  have  provided  excellent  material  for  a  study  of  the  relation 
of  taxes  to  income.  The  sole  difficulty  has  arisen  from  the  fact 
that  net  income,  a^  defined  in  the  regulations  of  the  Public  Service 
Commission,  does  not  correspond  to  net  income  as  reported  to 
the  tax  authorities. 

A  full  discussion  of  the  detailed  differences  is  impossible  in  the 
present  report.  In  brief,  net  corporate  income,  as  given  in  the 
reports  of  the  Public  Service  Commission,  is  equal  to  total 
revenues,  operating  and  non-operating,  less  expenses,  taxes,  uncol- 
lectible bills,  sinking  fund  accruals  and  certain  other  contractual 
deductions,  such  as  rent  and  interest.*  While  net  income  as 
here  defined  does  not  depart  widely  from  the  federal  definition, 
there  does  not  seem  to  be  a  direct  and  consistent  relationship 
between  the  two  items.  The  cause,  no  doubt,  lies  in  the  lack  of 
thoroughly  standardized  accounting  practices. 

One  change  is  made  in  this  item  in  using  it  in  the  present 
report.  In  working  out  the  tax  ratios  for  public  utilities,  the 
total  sum  paid  in  taxes  has  been  added  to  net  income  to  correct 
for  the  previous  deduction  of  this  item.  Thus  the  basis  of  all 
the  public  utility  tax  ratios  is  net  income  before  taxes  have  been 
deducted. 

In  comparing  these  ratios  with  the  ratios  for  business  corpora- 
tions and  financial  institutions,  this  difference  in  the  meaning  of 
net  income  must  be  borne  in  mind.  While  general  comparisons 
are  not  invalidated  by  this  difference,  attempts  to  make  refined 
comparisons  would  be  out  of  order.  As  between  public  utilities, 
of  course,  this  objection  does  not  hold,  for  the  base  is  the  same 
for  all  classes  of  public  utilities. 

Certain  other  terms  used  in  the  ratios  for  public  utilities  should 
be  explained.     Net  worth  as  here  used  is  the  sum  of  the  follow- 


*  For  a  more  complete  definition,  see  Uniform  System  of  Accovnta  for  Electrical 
Corporations,  New  York  State  Public  Service  Commission,  1908,  p.  81,  sec.  10. 


182 


ing  items:  "capital  stock''  and  "surplus"  (or  "deficit");  *' re- 
serves" and  "undivided  profits."  This  is,  of  course,  merely 
a  bookkeeping  figure  for  net  worth,  and  in  some  cases  includes 
items  which  could  be  questioned  as  representing  elements  of 
present  value.  The  item  "gross  earnings,"  as  given  in  this  re- 
port, is  the  sum  of  operating  revenue  and  non-operating  revenue, 
as  reported  to  the  'State  Public  Service  Commission. 

The  Burden  of  Taxes  on  Business  Corporations 

Inasmuch  as  the  tax  on  business  corporations  is  now  on  an 
income  basis,  this  class  has  been  used  as  the  standard  to  which  the 
other  groups  have  been  compared.  The  exact  status  of  the  cor- 
porations falling  within  this  class  should  be  made  clear,  however, 
before  the  taxes  paid  by  other  corporations  are  discussed.  The 
basic  tax  now  paid  by  business  corporations  *  is  a  4%  per  cent  tax 
on  net  income  as  defined  above.  This  is  in  lieu  of  all  other  fran- 
chise and  personal  property  taxes.  These  corporations  are  taxed 
in  addition,  of  course,  upon  all  real  property  held,  certain  forms 
of  fixed  equipment  being  included  in  the  definition  of  real 
property. 

The  amounts  paid  by  corporations  taxed  under  Article  9-a  of 
the  tax  law  are  sho^vn  below  for  the  last  four  years  (fiscal  years 
ending  June  30th).  The  figures  for  1918  and  1919,  it  should 
be  noted,  represent  taxes  collected  when  the  franchise  tax  was 
3  per  cent  of  net  earnings,  while  the  1920  and  1921  figures  rep- 
resent 41/^  per  cent  of  net  earnings. 

TABLE  1 

Receipts  From  Tax  on  Business  Corporations 
Year  Receipts  f 

1918    $13,676,676 

1919    19,785,618 

1920    29,789,350 

1921    42,889,822 

In  addition  to  the  basic  tax  of  41^  per  cent  on  net  income, 
business  corporations  are  subject  to  taxes  on  real  property  as 

•  The  exact  meaning  of  this  term  is  made  clear  above  in  the  summary  of  existing 
oorporation  tax  laws.     Cf.  supra,  p.  177. 

t  The  1919  figures  include  some  taxes  levied  in   1918.  but  not  collected  till  1919 


> 


U 


183 

noted  above.  For  reasons  which  are  discussed  in  more  detail 
below,*  these  property  taxes  are  not,  in  general,  as  burdensome 
as  are  other  direct  taxes.  The  amount  of  such  taxes  paid  by 
business  corporations  may  be  noted  in  passing,  however.  While 
specific  figures  are  not  obtainable,  this  amount  may  be  approxi- 
mated by  multiplying  the  total  assessed  values  of  property  held 
by  business  corporations  by  the  average  tax  rate.  In  1920  the 
amount  paid  in  property  taxes  by  mercantile  and  manufacturing 
corporations  was  approximately  30  millions  of  dollars  or  4%  per 
cent  of  their  total  net  income.  Thus  total  taxes  paid  in  New 
York  State  by  business  corporations  under  existing  laws  would 
be  about  9  per  cent  of  their  net  income.  This  percentage  would 
be  slightly  lower  (about  8.65)  if  the  base  taken  were  net  income 
before  any  taxes  were  deducted. f  Later  reference  will  be  made 
to  these  figures  in  comparing  the  burden  upon  these  companies 
with  the  burden  of  taxes  on  other  corporate  groups,  t 

The  Burden  of  Taxes  on  Financial  Institutions 

The  classes  of  financial  institutions  studied  in  the  present  seo- 
tion  are  national  and  state  banks,  trust  companies,  investment 
companies  and  savings  banks.  The  taxes  paid  by  these  institu- 
tions have  been  summarized  above.  § 

In  brief,  national  and  state  banks  pay  annually,  on  behalf  of 
their  stockholders,  a  tax  of  one  per  cent  on  the  value  of  their 
shares  of  stock.  As  the  value  of  the  shares  is  based  upon  the 
capital,  surplus,  and  undivided  profits  of  the  individual  banks, 
the  tax  amounts  to  one  per  cent  of  capital,  surplus,  and  undivided 
profits.  Trust  companies  pay  a  franchise  tax  of  exactly 
the  same  percentage  of  their  capital,  surplus,  and  undivided 
profits.  Investment  companies  pay  a  franchise  tax  calculated  upon 
a  double  basis ;  it  is  equal  to  one  per  cent  of  surplus  and  undivided 
profits,  plus  one  and  one-half  mills  on  each  dollar  of  capital  stock. 
Savings  banks  pay  a  franchise  tax  equal  to  one  per  cent  of  the 
par  value  of  surplus  and  undivided  earnings.  In  addition,  all 
thbse  institutions  are  subject  to  a  tax  on  their  real  property. 

♦  Cf.  infra,  pp.  193.  194.  .  .  .       ^  ,     ,  .. 

t  Attention  should  be  called  to  the  fact  that  the  base  used  in  these  calculations 
Is  that  part  of  the  total  net  income  of  business  corporations  which  has  been 
allocated  to  New  York. 

t  Infra,  pp.  196,  258-261.  * 

S  Supra,  p.  177 


184 

The  amounts  collected  from  financial  institutions  in  the  form 
of  bank  stock  or  franchise  taxes  are  given  in  the  following  table, 
covering  the  period  1917-1920.  The  figures  for  national  and 
state  banks  have  been  estimated  by  dividing  the  total  receipts 
from  the  bank-stock  tax  between  these  two  classes,  the  basis  being 
the  aggregate  capital,  surplus,  and  undivided  profits  of  the  two 
groups.  The  fact  has  been  noted  elsewhere  that  these  figures, 
which  are  actual  receipts  by  fiscal  years  ending  June  30th,  show 
a  lag  of  one  year  when  compared  with  the  direct  returns  from  the 
banks,  which  have  been  used  in  compiling  the  other  tables  in  this 
section. 

TABLE  2 

Receipts     From    Bank     Stock     or    Franchise     Taxes     on 

Financial  Institutions* 


class  of  corporation 


Notional  banks. 

State  banks . . . . , 
Triist  companies 
Savings  banks. . 

Total , 


Amounts  Paid  ix  Bank  Stock  or  Franchise  Taxbs 


19i: 


S4, 390, 105 

932,032 

2.536,718 

1,394,647 


$9,253,502 


1918 


$4,602,352 

981,762 
2,778,674 
1.455,434 


$9,818,122 


1919 


$5,010,510 
1.068,152 
2.911,474 
1,337.961 


$10,328,097 


1920 


$5,792,208 
1.239,268 
3,196.586 
1.439.896 


11.637  .958 


1921 


$3,377,292 
881.950 


What  do  these  taxes  amount  to  in  terms  of  net  income?  This 
question  must  be  answered,  first,  for  the  different  corporations 
falling  within  a  given  class,  and,  secondly,  for  the  class  as  a 
whole,  in  order  that  comparison  with  business  corporations  may 
be  made. 

The  first  question  relating  to  the  burden  of  taxes  upon  the 
members  of  a  given  class  is  answered  specifically  in  the  five  tables 
immediately  following.  Table  3  shows  the  percentage  of  net 
income  paid  in  the  bank  stock  tax  by  398  national  banks  in  New 
York  State,  classified  according  to  size.  IN^et  income,  as  here 
used,  has  been  defined  above.  Both  the  income  and  tax  figures 
are  averages  for  the  three  years  1918,  1919,  and  1920.  The 
remaining  tables  present  similar  figures  for  the  other  classes  of 
financial  institutions. 


•  Investment  companies  have  not  been  included  in  this  table.     The  receipts  from 
this  class  are  not  large. 


«       • 


185 


TABLE  3 

Percentage  of  Net  Income  Paid  in  Bank   Stock  Tax  by 
National  Banks  in  New  York  State 

Frequency  Table  Showing   the  Felative   Burden  of   the  Bank  Stock   Tax  on 

National  Banks,  by  Classes 

(Based  upon  the  average  tax  and  the  average  State  net  taxable  income  for 

the  three  years  1918,  1919  and  1920) 


Number  Fating 

Num- 
ber 

in 

CLASS* 

!         1 

1 

1 

Orer 
40 

each 

0 

2% 

4% 

6%  '  8%  10% 

12%il4% 

16% 

18% 

20% 

22% 

24% 

26%;30% 

clasB 

to 

to 

to 

to      to     to 

to  1  to 

to 

to 

to 

to 

to 

to  !  to 

1.9% 

3.9 

5.9 

7.9 

9.9  11.9 

13.9 

1 
4 

15.9 

17  9 

19.9 

•  • 

21.9 

"i 

23.9 

25.9 

27.931.9 

per 
enit 

A 

11 

28 



1 
2 

3 

5 

1 

•  • 

4 

i 

B 

8  i     7 

•  • 

C 

204 

1 

2 

8 

33     35 

4,1 

31 

20 

7 

3 

5 

3 

3 

3 

a 

D 

155 

1 
6 

20 
31 

37  J  33 

26 
75 

11 

47 

11 
32 

6 
13 

3 
6 

2 

8 

1 
4 

2 

2 

Total 

398 

1 

83 

76 

4 

5 

2^         5 

*  Class  A  is  composed  of  companies  with  capital,  surplus,  and  undivided  profits 
of  $10,000,000  and  over ;  Class  B,  of  $1,000,000  to  $10,000,000 ;  Class  C,  $100,000  to 
$1,000,000 ;  and  Class  D,  less  than  $100,000. 

(Three  national  banks  reported  an  average  deficit  for  this  period) 


TABLE  4 

Percentage  of  "Net  Income  Paid  in  Bank   Stock  Tax  by 

State  Banks  in  New  York  State 

Frequency  Table  Showing   the  Relative  Burden  of   the  Bank  Stock   Tax  on 

State  BankSy   by   Classes 

(Based  upon  the  average  tax  and  the  average  State  net  taxable  income  for 

the  three  years  1918,   1919  and   1920) 


Num- 
ber 
in 
eaoh 
class 

l^UKBER  Pa  TING 

CLASS ♦ 

0 

to 

1.9% 

2% 

to 

3.9 

•  * 

*i 

1 

4% 

to 

5.9 

6% 

to 

7.9 

8% 

to 

9.9 

3 
17 
16 

36 

10% 

to 
11.9 

3 

7 
8 

18 

12% 

to 

13.9 

2 
9 
4 

14% 

to 

15.9 

i 

8 
3 

18% 

to 

19.9 

20% 

to 

21.9 

22%  34% 

to      to 

23.9|35.9 

I 

i 

1                 1 

Over 
40 
per 

cent 

A 

1 
21 
77 
57 

•  ■  •  • 

•  •  •  • 

2 

3 

14 
6 

1 

9 

13 

17 

i 

1 

2 
1 

B 

C 

■  i 

D 

A 

Total 

156 

2 

2 

23 

40 

15 

12 

2 

3 

1 

1 

1 

♦Class  A  IS  composed  of  companies  with  capital,  surplus,  and  undivided  profits  of  $10,000,000 
and  over;  Class  B.  of  $1,000,000  to  $10,000,000;  Class  C.  $100,000  to  $1,000,000;  and  Class  D. 
less  than  $100,000. 

(Two  State  banks  reported*  an  average  deficit  for  this  period) 


U 


*f5- 


i 


186 

TABLE  5 

Percentage    of   Net    Income    Paid   in    Franchise    Tax    by 
Trust  Companies  in  !N^ew  York  State 

Frequency   Table   Showing   the   Relative   Burden   of   the  Franchise    Tax  on 

Trust  Companies,   by  Classes 

(Based  upon  the  average  tax  and  the  average  State  net  taxable  income  for 

the  three  years   1918,   1919  and   1920) 


NUMBKR  PaTINQ 

Num- 
ber 
in 

CLASS  • 

OTer 

each 

0 

3% 

4% 

6% 

8% 

10% 

12% 

14% 

16% 

18% 

20% 

26% 

30% 

36% 

40 

filM 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

per 
cent 

1.9% 

3.9 

5.9 

7.9 

9.9 

11.9 

13.9 

3 
5 

15.9 
2 

17.9 

19.9 

21.9 

27.9 

31.9 

"i 

1 

37.9 

i 

1 

A 

8 
25 
48 

•  •  •  • 

2 

1 

1 
1 
3 

5 

•  • 

1 
6 

7 

4 

4 
10 

18 

2 
4 

5 

1 
8 
7 

i 
1 

•  • 

3 
3 

•  • 

2 

2 

i 

1 

B 

i 

C 

Total 

81 

3 

11 

10 

8 

2 

2 

1 

♦  Class  A  is  composed  of  companies  with  capital,  surplus  and  undivided  profits 
of  110,000,000  and  over;  Class  B,  of  $1,000,000  to  $10,000,000;  Class  C, 
$100,000  to  $1,000,000. 

(One   trust   company   reported   an   average   deficit  for   this   period) 


TABLE  6 

Percentage   of   Net    Income   Paid   in    Franchise    Tax   by 
Investment  Companies  in  New  York  State 

Frequency    Table   Showing    the    Relative    Burden    of   the   Franchise    Tax   on 

Investment  Companies,  by  Classes 

(Based  upon  the  average  tax  and  the  average  State  net  taxable  income  for 

the  three  years  1918,  1919  and  1920) 


Number 

in 

class 

NincBBR  Patino 

CLASS* 

0 

to 

1.9% 

2% 

to 

3.9 

4% 

to 

5.9 

6% 

to 

7.9 

8% 

to 

9.9 

B 

3 

12 

1 
1 

1 
7 

1 
2 

i 

C 

i 

Total 

15 

2 

8 

3 

1 

1 

♦  Class  B  is  composed  of  companies  with  capital,  surplus,  and  undivided  profits 
of  $1,000,000  to  $10,000,000 ;  Class  C,  $100,000  to  $1,000,000. 


h* 


(  \ 


187 


TABLE  7 

Percentage  of  Net  Earnings  Paid  in   Franchise   Tax  by 
Savings  Banks  in  New  York  State 

Frequency    Table   Showing    the   Relative    Burden    of    the   Franchise    Tax   on 

Savings  Banks,  by  Classes 

(Based  upon  the  average  tax  and  the   average  net  earnings  over  expenses 
and  dividends   for  the  three  years   1918,    1919   and   1920) 


CL.VSS  * 

NumbPF 

in 

class 

Number  Patinq 

1 

0        2%  '  4% 
to     i  to  i   to 
1.9% '3.9    5.9 

1 

6% 

to 

7.9 

8 

21 

7 

36 

8% 

to 

9.9 

6 

10 

3 

19 

10% 

to 

11.9 

3 
5 
2 

10 

12% 

to 

13.9 

1 
5 

6 

14% 

to 

15.9 

18% 

to 

19.9 

20% 

to 

21.9 

26% 

to 

27.9 

B 

30 
73 
32 

1 
3 
3 

6 

7 

8 
21 
10 

1 

i 

i 

1 

1 

c 

D 

Total  * 

135 

7 

14 

39 

1 

1 

1 

*  Class  B  is  composed  of  companies  with  surplus  and  undivided  profits  of 
$1,000,000  to  $10,000,000;  Class  C,  $100,000  to  $1,000,000;  and  Class  D,  less 
than  $100,000. 

The  outstanding  fact  is  that  the  tax,  as  at  present  levied,  falls 
upon  members  of  the  same  gi*oup  with  very  unequal  weight, 
when  expressed  in  terms  of  tax-paying  ability,  as  represented  by 
net  income.  In  the  national  bank  group  one  institution  paid 
less  than  two  per  cent  of  its  income  in  the  bank  stock  tax,  while 
five  paid  over  forty  per  cent.  Between  these  two  limits  there  is 
a  wide  dispersion.  Twenty-eight  banks  pay  more  than  twenty  per 
cent  of  their  net  income  in  meeting  this  tax.  Two  hundred  and 
one  of  the  total  of  398  banks  pay  ten  per  cent  or  more. 

The  extent  to  which  this  inequality  is  connected  with  inequali- 
ties of  size  is  also  indicated  by  the  table.  There  is  no  uniformity 
of  burden,  even  within  a  given  class,  but  in  general  the  large 
banks  pay  a  smaller  percentage  of  their  net  income  in  taxes  than 
do  the  banks  of  medium  or  small  size.  Thus  ten  of  the  eleven 
banks  in  Class  A  (having  capital,  surplus,  and  undivided  profits 
of  $10,000,000  or  over)  pay  less  than  ten  per  cent  of  their  net 
income  in  meeting  the  bank  stock  tax.  Of  the  204  banks  in 
Class  C  (having  capital,  surplus,  and  undivided  profits  of 
H00,000  to  $1,000,000)  only  79  pay  less  than  ten  per  cent. 

The  average  burden  in  each  class  is  indicated  in  the  following 
able,  a  summarv  of  the  five  detailed  tables: 


I 

r 


188 


TABLE  8 


Average  Ratio  of  Bank-Stock  Tax  or  Franchise  Tax  to 
'N:et  Income,  Financial  Institutions  in  New  York 
State  by  Classes. 


(The  average  employed  in  each  case  is  the 
total  number  of  corporations  included  in  each 
than  the  given  percentage  of  their  net  income 
half  paid  less.) 


median;  thus  one-half  of  the 
of  the  given  groups  paid  more 
in  meeting  the  tax,  while  one- 


Class  of  Cohpoeation  ♦ 

National  Banks  — 

Class  A   (Over    $10,000,000)     

B  ($1,000,000  to  $10,000,000) 
C  ($100,000  to  $1,000,000)... 
D    (Less    than   $100,000) 

Total 

State  Banks  — 

Class  A     

B    

C    

D 

Total 

Trust  Companies  — 

Class  A     

B    

C    

Total 

Investment  Companies  — 

Class  B    

C    

Total 

Savings  Banks  — 

Class  B     

C    

D    

Total 


Number 
reporting 


11 

28 
204 
155 


Average  ratio  of 

bank  stock  or 

franchise  tax 

to  net  income 

{median) 

6.60 

9.14 

11.02 

9.18 


398 

10.03 

1 
21 

77 
57 

7 

7.67 
9.00 
8.56 

15d 

8.61 

S 
25 

48 

7.5 

10.12 

9.6 

81 

9.36 

a 

12 

3 

3.43 

15 

3.37 

30 
7S 
32 

7.25 

6.62 
5.20 

135 


6.42 


The  average  given  above  as  most  representative  of  the  typical 
condition  in  each  class  is  the  median,  the  value  of  the  middle 
item  in  an  array.  Thus  for  national  hanks  in  Class  A  the  median 
is  6.6  per  cent.  That  is,  the  number  of  banks  paying  more  than 
Q.Q  per  cent  of  their  net  income  in  meeting  the  bank  stock  tax 

*  Class  A  is  composed  of  corporations  with  capital,  surplus,  and  undivided  profits 
(in  the  case  of  savings  banks  with  surplus  and  undivided  profits)  of  $10,000,000 
and  over ;  Class  B,  of  $1,000,000  to  $10.000,000 ;  Class  C,  of  $100,000  to  $1,000,000 ; 
and  Class  D,  less  than  $100,000. 


»« 


V 


•  » 


189 


is  exactly  equal  to  the  number  paying  less  than  that  amount.  In 
Class  B  the  median  is  9.14  per  cent,  while  in  Class  C  it  is  11.02 
per  cent.  Thus  of  the  204  national  banks  in  Class  C,  102  pay 
more  than  11.02  per  cent  of  their  net  income  in  meeting  this  tax, 
while  102  pay  less  than  that  amount.  The  difference  between  the 
situation  in  this  class  and  that  in  Class  A  is  obvious.  The  median 
value  in  Class  D  is  9.18  per  cent,  a  smaller  value  than  that  in 
Class  C.  The  median  of  the  entire  group  of  national  banks, 
398  in  all,  is  10.03  per  cent.  One  hundred  and  ninety-nine  banks 
pay  less  than  this  amount,  and  199  banks  pay  more. 

This  inequality  as  between  corporations  in  a  given  class  is 
found  in  the  case  of  each  of  the  other  types  of  financial  institu- 
tions. State  banks  show  a  distribution  much  the  same  as  that 
found  for  national  banks,  though  the  difference  between  classes 
is  not  so  pronounced.  The  same  is  true  of  trust  companies.  In 
the  case  of  investment  companies,  a  group  in  which  the  general 
tax  burden  is  less  than  it  is  for  other  financial  institutions,  the 
inequalities  within  the  group  are  less  pronounced.  Of  the  fifteen 
institutions  for  which  complete  records  were  obtained,  none  paid 
more  than  10  per  cent  of  their  net  income  in  meeting  these 
franchise  taxes.  The  median  for  the  group  as  a  whole  was  3.37 
per  cent. 

In  studying  the  burden  of  taxes  on  savings  banks,  the  basis  has 
been  net  earnings  over  expenses  and  dividends.  This  figure 
corresponds  to  net  income  as  used  by  other  financial  institutions. 
That  the  franchise  tax  on  savings  banks,  when  expressed  as  a 
percentage  of  net  earnings,  falls  with  unequal  weight  upon  these 
institutions,  as  in  the  cases  of  other  classes  of  institutions,  is 
demonstrated  by  the  table  and  graph  covering  this  group.* 

These  wide  discrepancies  in  tax  burden  which  occur  among 
corporations  of  the  same  class  are  due  to  the  fact  that  there  is  no 
consistent  relationship  between  capital  and  surplus  on  the  one 
hand  and  earning  power  on  the  other.     In  general,  of  course,  an 

*  When  account  is  taken  of  three  national  banks,  two  State  banks  and  one  tmst 
company  which  reported  deficits  for  the  period  covered,  and  two  savings  banks 
paying  no  tax  because  of  credit  granted  for  bonds  held,  the  medians  become : 

Per  cent 

National  banks 10 .11 

State  banks 8. 67 

Trast  companies   9 .  45 

Investment  companies   3 .37 

Savings  banks    6 .  36 


itJ 


I 


190 

increase  in  capital  and  surplus  means  increased  earnings,  but 
that  the  relationship  is  not  direct  is  demonstrated  by  the  figures 
presented  above.  A  tax  which  must  be  paid  out  of  net  earnings 
is  levied  upon  another  base,  with  the  result  that  wide  variations 
occur  in  the  burden  of  taxes,  expressed  in  terms  of  net  income. 

One  other  aspect  of  the  present  system  is  worthy  of  note.  As 
between  two  institutions,  one  paying  out  earnings  as  soon  as 
realized,  another  building  up  a  surplus  by  putting  earnings  back 
into  the  enterprise,  the  present  method  of  levying  taxes  on 
financial  institutions  places  the  heaviest  burden  upon  the  latter. 
In  a  sense,  thus,  these  taxes  are  taxes  which  discriminate  against 
the  conservative  concern  which  builds  up  a  surplus.  They  can 
be  partly  evaded  by  distributing  dividends  closely. 

Comparison  of  financial  institutions  and  business  corpora- 
tions.—  How  do  taxes  on  financial  institutions,  when  expressed 
in  terms  of  net  income,  compare  with  the  existing  4%  per  cent 
tax  on  the  net  income  of  business  corporations?  It  has  been 
demonstrated  that  there  is  inequality  as  between  financial  institu- 
tions. There  remains  to  be  discussed  the  question  as  to  the  rela- 
tion of  the  average  burden  on  financial  institutions  to  the  average 
burden  on  business  corporations. 

The  matter  is  complicated  by  the  wide  variation  in  burden 
within  the  financial  groups.  In  classes  characterized  by  such 
extreme  variation,  what  figure  is  to  be  taken  as  representative  of 
the  average  burden  of  present  taxes  ?  One  average,  the  median, 
has  been  used  above,  and  the  comparison  on  this  basis  may  be 
extended  for  the  present  purpose.  Another  average,  however, 
representing  more  accurately  the  fiscal  aspects  of  the  problem, 
should  be  used  to  supplement  the  median.  The  latter  gives  the 
same  weight  to  both  large  and  small  banks,  but  in  computing  the 
yield  of  a  given  tax  more  weight  must  be  given  to  the  larger  insti- 
tutions. Since  we  are  desirous  of  knowing  what  tax  on  net  in- 
come would  yield  as  much  as  the  present  bank  stock  and  franchise 
taxes,  a  ratio  giving  this  information  is  required. 

For  this  purpose  the  percentage  of  net  income  paid  in  taxes 
by  each  of  the  classes  of  financial  institutions  has  been  determined 
by  computing  the  ratio  of  total  taxes  paid  over  a  given  period  to 


191 

the  total  net  income  of  all  the  corporations  in  each  class  for  the 
same  period.  Thus,  in  the  case  of  national  banks  in  New  York 
State,  the  total  amount  paid  in  bank-stock  taxes  by  397  banks, 
during  the  years  1918,  1919  and  1920,  and  the  total  net  income 
of  these  banks  during  this  period  have  been  determined.  The 
ratio  of  the  former  figure  to  the  latter  is  .068.  The  amount  paid 
in  taxes  is  thus  6.8  per  cent  of  net  income  during  this  period. 
The  percentages  as  determined  for  the  different  classes  of  financial 
institutions  are  shown  in  the  following  table.  The  comparison 
made,  it  should  be  understood,  does  not  include  real  or  personal 
property  taxes  paid  by  any  of  the  groups  involved. 

TABLE  9 

Percentage    of    Net    Income    Paid    in    Bank     Stock    or 

Franchise  Tax  by  Financial  Institutions 

(Ratios  based  on  aggregates  of  three-year  figures,   1918-1920) 

Ratio  of  bank-stock  tax 

(or  franchise  tax)  to  net 

income  after  property 

taxes  deducted 

Percentage 

Is^ational  banks 6 .  80 

State  banks 6.58 

Trust  companies 7.33 

Investment  companies 3 .  13 

Savings  banks 5 .  80 

It  is  evident  that  with  one  exception  financial  institutions  pay 
a  somewhat  larger  percentage  of  their  net  income  in  meeting  their 
bank  stock  or  franchise  taxes  than  do  business  corporations  in 
paying  the  tax  on  net  earnings.  In  comparison  with  the  4i  2  per 
cent  paid  by  business  corporations  the  three-year  average  for 
national  banks  shows  that  6.8  per  cent  of  their  net  income  has 
been  paid  in  taxes,  as  has  been  stated  above.  The  corresponding 
figure  for  state  banks  is  6.58  per  cent,  for  trust  companies  7.33 
per  cent,  and  for  savings  banks  5.8  per  cent.*  Investment  com- 
panies constitute  the  one  class  paying  less  than  business  corpora- 

•  These  ratios  for  trust  companies  and  savings  banks  are  based  upon  taxes  actually 
paid,  not  Including  the  amount  of  the  levy  for  which  credit  was  granted  for  State 
bonds  held.  If  the  tax  levied  be  used,  instead  of  the  tax  paid,  the  ratios  become 
7.5  per  cent  for  trust  companies  and  6.74  per  cent  for  savings  banks. 


t   I 

I 


192 

tions,  on  the  average.     The  fifteen  companies  included  showed 
an  average  of  3.13  per  cent  of  net  income  paid  in  taxes  * 

A  comparison  may  also  be  made  of  the  number  of  corporations 
o±  each  type  paying  a  percentage  of  net  income  in  taxes  equal  to 
or  less  than  that  paid  by  business  corporations.  This  information 
IS  given  in  the  following  summary: 

TABLE  10 

FlNA^-CIAL    iNSTITtTTIONS,    BY    CLASSES,    PaYI.N^G    4I/2    Peb    CeNT 

OF  Net  Income  oe  Less  m  Bank-Stock  Tax  oe  Feanchise 

lAX 


CLASS 


National  banks 

State  banks ' . 

Trust  companies. . . . . . 

Investment  companies 
Savings  banks 


Total 

number 

reporting 


Number  paying 

4J  per  cent 

or  less  in 

bank-stock  tax 

or  franchise  tax 


It  IS  apparent  that  a  large  majority  in  all  classes  except  the 
mvestment  companies  group  pay  more  than  ^y^  per  cent  of  their 
net  income  in  meeting  the  taxes  named.  These  figures  sub- 
stantiate the  evidence  of  the  other  tables  and  throw  some  addi- 
tional light  upon  the  situation  within  the  general  class  of  financial 
institutions. 

In  studying  the  percentage  of  net  income  paid  in  taxes,  it  ia 
of  some  interest  to  determine  the  year-to-year  changes.  The  fol- 
lowing table  shows,  for  all  the  classes  here  considered,  the  ratio  of 
taxes  to  net  income  for  the  years  1918,  1919  and  1920  The 
percentages  given  were  calculated  on  the  basis  of  yearly  ag-re- 
gates,  the  general  method  being  that  indicated  above.  Net  income 
means  m  each  case  net  income  before  bank  stock  or  franchise 
taxes  have  been  deducted. 

«(^™  atferVelng"  negiigfble.''''  '"'  "*^"  «™'"<'''  '<>'  State  bonds  heW.  the  amount 


*  • 


4> 


193 


TABLE  11 


Percentage  of  Xet  Income  Paid  in  Bank-Stock  T.vx  or 
Franchise  Tax  by  Financial  Institutions  in  New  York 
State,  Classified,  by  Years,  1918-1919 


CLASS  OF  INSTITUriON 

Pehcrjjtage  of  Net  Income  Paid  ix 
Baxk-Stocx  Tax  oa  Franchise  Tax 

1918 

1919 

1920 

National  banks 

7.0 
8.2 
8.4 
5.0 
8.1 

6.3 
5.9 
7.6 
3.0 
7.0 

6.7 

State  banks    

6.2 

Trust  comoanies 

6.5 

Invpstinoiit  cotnDanies 

2.7 

Savings  ba,nks        

3.3 

It  is  apparent  that  a  tax  on  capital  and  surplus  means  a 
tax  which  varies  from  year  to  year,  when  expressed  in  terms  of 
net  income.  When  income  is  increasing  faster  than  the  surplus 
is  being  built  up,  this  means  a  decreasing  annual  tax.  This  con- 
dition prevailed  during  the  three  years  here  considered. 

This  is  particularly  true  in  the  case  of  savings  banks  and 
investment  companies.  The  tax  on  the  former,  which  amounted 
to  8.1  per  cent  of  net  earnings  in  1918,  fell  to  3.3  per  cent  of 
net  earnings  in  1920.  The  fact  that  the  present  tax  is  based  ujx)n 
a  variable  surplus,  having  no  immediate  relation  to  earnings,  is 
clear  in  this  case.  For  the  savings  banks  here  included  (135 
in  number)  surplus  and  undivided  profits  decreased  from 
$144,780,305  in  1918  to  $98,080,640  in  1920,  while  net  earn- 
ings increased  from  $14,274,279  in  1918  to  $23,275,379  in 
1920.* 

In  tlie  above  treatment  the  comparison  of  tax  burden,  as 
between  financial  institutions  and  business  corporations,  has  been 
confined  to  the  discussion  of  taxes  other  than  property  taxes.  This 
has  been  done  on  the  assumption  that  the  burden  of  non-property 
taxes  is  much  more  direct  and  immediate  than  that  of  taxes  on 
real  property.  A  long-standing  tax  on  real  property  has  in  gen- 
eral l>een  capitalized  in  determining  the  value  of  the  property, 
so  that  the  present  payer  does  not  feel  the  burden  directly.     It  is 


*  These  figures  are  for  net  earnings  after  taxes  had  been  deducted, 
are  based  upon  net  earnings  before  taxes  were  deducted. 


The  ratios 


T 


1 1 


194 


considered,  therefore,  that  a  comparison  of  the  burden  of  non- 
property  taxes  has  more  significance  for  our  present  purposes 
than  a  comparison  of  the  burden  of  all  taxes. 

Having  stressed  the  main  relations  involved  in  the  first  com- 
parison, however,  it  is  of  some  interest  to  compare  the  burden 
of  property  taxes,  as  borne  by  the  different  corporate  groups.  In 
computing  the  ratios  given  in  the  table  following,  the  returns 
from  individual  financial  institutions  have  been  utilized.  The 
ratios  are  based  upon  the  amount  paid  in  property  taxes  and 
the  net  income  for  the  year  1920.  The  net  income  used  as  a  base 
is  the  net  income  before  any  taxes,  franchise  or  property  have 
been  deducted.  In  determining  the  ratio  for  business  corpora- 
tions, total  net  income  has  been  calculated  by  capitalizing  the 
amount  paid  in  income  taxes.  The  amount  of  property  taxes  paid 
by  business  corporations  is  a  fairly  close  approximation  obtained 
by  multiplying  the  total  assessed  value  of  such  property  by  the 
average  tax  rate  for  the  State. 

TABLE  12 

Pebcentage    of   !N^et   iNCo^fE    Paid    ix    General    Property 
Taxes  by  Business  and  Financial  Corpobations,   1920 

Percentage  of  net  income 
paid  in  general  property 
Class  of  corporations  tax  (real  and  personal) 

Business    Corporations    (Mercantile    and 

Manufacturing)     4.5 

National  Banks   1.5 

State  Banks 3.5 

Trust  Companies 4.1 

Investment   Companies    0.7 

Savings  Banks 3.6 

It  is  apparent  that  there  is  a  considerable  variation  in  the 
percentage  of  net  income  paid  in  property  taxes.  As  compared 
with  the  4%  per  cent  paid  by  business  corporations,  trust  com- 
panies pay  4.1  per  cent  and  State  banks  3.5  per  cent.  The 
amount  paid  by  national  banks  was  only  1.5  per  cent  of  their 
net  income,  in  1920,  while  investment  companies  paid  but  seven- 
tcntbs  of  one  per  cent.     These  figures  are  in  all  cases  somewhat 


195 

smaller  than  the  percentage  paid  in  earlier  years,  the  decrease 
being  due  to  the  increase  in  the  incomes  of  financial  institutioi3 
in  1919  and  1920.  The  figures  for  the  earlier  years  are  given 
below  for  financial  institutions,  with  the  exception  of  Savings 
Banks. 


TABLE  13 

Percentage   of   Net   Income    Paid   in  Property    Taxes   by 
Financial  Institutions  in  New  York  State,  by  Years 
1918-1920  '  ' 


class  of  corporation 


National  banks 

State  banks 

Trust  companies 

Investment  companies 
Savings  banks 


Percentage  of  Net  Ivcome 
Paid  in  Propertv  Taxes 


1918 


1.7 
5.4 
5.0 
1.6 


1919 


1.5 
3.6 
4.8 
1.9 


1920 


1.5 
3.5 
4.1 
.7 
3.6 


A  summary  of  the  total  amounts  paid  in  taxes  by  business 
corporations  and  financial  institutions  may  now  be  given.  The; 
following  table  shows  the  percentage  of  net  income  paid  in  all 
taxes  (bank-stock  (or  franchise)  and  property)  by  business  cor- 
porations and  financial  institutions.  For  financial  institutions, 
with  the  exception  of  savings  banks,  figures  for  three  vears  are 
given. 

In  the  case  of  business  corporations  1920  figures  alone  are 
used,  the  property  taxes  paid  in  that  year  being  added  to  4l/> 
per  cent  of  their  total  net  income  in  securing  the  total  tax  figures^ 
JSTet  income  in  each  case  is  a  figure  from  which  no  taxes  have 
been  deducted.* 

for* ^t^r%lln'Ji''\anof^^^^  'bVTeT^.'r  ""^  *^V°^  "^-^ 


196 

TABLE  15 

Percets^tages  of  Net  Income  Paid  in  Franchise  (or  Bank* 
Stock)  and  Property  Taxes  by  Business  CoRPORATioNa 
AND  Financial  Institutions  in  I^ew  York  State. 
1918-1920. 


CLASS  OF  CDRPORATION 


Business  corporations. . 

National  binks 

State  binks 

Trust  com  JJinies. .  .  .  .  . 

Investment  companies. 
Savings  binks 


Percsntaoe  of  Net  Ixcome 
Paid  in  Taxes 


1918 


8.7 
13.3 
12.9 

6.4 


1919 


7.7 

9.4 

12.0 

4.8 


1920 


8.65 
8.1 
9.6 
10.3 
3.3 
6.8 


The  table  shows  somewhat  the  same  distribution  of  burden 
as  was  found  in  the  case  of  non-property  taxes,  trust  companies 
and  investment  companies  standing  at  the  two  extremes.  The 
difference  between  the  burden  on  business  corporations  and 
financial  institutions  is  less  pronounced,  however,  the  property 
taxes  being  relatively  larger  for  the  former  class. 

The  warning  which  was  given  above  that  taxes  on  real  property, 
apart  from  improvements,  are  not  necessarily  borne  by  the 
present  tax-payer,  must  be  remembered  in  studying  these  tables. 
Keal  burden  is  better  indicated  by  the  first  tables,  dealing  with 
non-property  taxes,  than  by  those  in  which  account  is  taken  of  all 

taxes  paid. 

The  detailed  figures  on  which  the  above  ratios  are  based  are 

included  in  the  appendices. 

The  Burden  of  Taxes  on  Public  Utilities 

The  taxes  paid  by  public  service  corporations  in  Xew  York 
State  have  been  described  in  an  earlier  section  of  the  present 
report.*     The  following  is  a  brief  summary  of  that  section : 

All  public  service  corporations  are  taxed  on  their  real  and  per- 
sonal property  and  on  the  value  of  their  special  franchises.  Tiiis 
latter  tax  is  based  in  part  on  the  value  of  tangible  property  in 

•  C/.  supra,  p.  178 


197 

the  streets,  and  in  part  upon  the  value  of  certain  intangible  ele- 
ments.   The  value  of  these  intangible  elements  is  determined  with 
reference  to  corporate  earning  power.     The  taxes  described  above 
are  paid  to  the  localities  in  the  form  of  a  general  property  tax. 
In  addition  to  these  local  charges  all  public  utilities  are  taxed  by 
the  State  on  their  gross  earnings  (or  on  gross  earnings  and  excess 
dividends),  and  certain  classes  are  taxed  on  their  capital  stock. 
The  rate  of  the  gross  earnings  tax  varies,  being  one-half  of  one 
per  cent  for  steam  railroads,  telephone  and  telegraph  companies, 
and  gas,  electric  and  water  companies,  and  one  per  cent  for  ele- 
vated or  surface  electric  railroads.     Underground  electric  rail- 
roads are  taxed  upon  the  same  basis  as  steam  railroads.      The 
general  franchise  tax  on  capital  stock  is  paid  by  steam  railroads, 
underground    electric    railroads    and    telephone    and    telegi'aph 

companies. 

The  amounts  paid  in  taxes  by  tke  different  classes  of  public 
service  corporations  during  the  period  1917-1920  are  shown  in 
the  following  table.  The  totals  for  all  public  utilities  show  the 
yields  of  the  various  taxes.  In  certain  cases  the  exact  amount 
paid  by  a  given  class  of  public  service  corporation  in  meeting  a 
given  tax  could  not  be  ascertained  from  the  Tax  Commission 
records,  and  in  these  cases  the  figures  presented  are  estimates. 
These  have  been  checked  and  tested,  and  are  believed  to  approxi- 
mate closely  the  actual  tax  paid. 


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201 

Method  of  study. —  The  general  method  employed  in  deter- 
mining the  burden  of  taxes  on  the  different  classes  of  public  serv 
ice  corporations  has  ])een  the  sclecticn  of  a  sample  group  from  each 
class,  and  the  intensive  study  of  this  group  with  respect  to  earn- 
ings, expenses,  and  taxes.  It  has  been  j>ossible  to  secure  adequate 
samples  of  telephone  and  telegraph  corporations,  street  railways, 
and  gas  and  electric  corporations.  For  these  groups  the  ratios 
and  tables  are  based  upon  an  intensive  study  of  the  individual  cor- 
porations included  in  the  samples  during  the  period  1911—1920. 

A  study  of  steam  railroads  upon  the  same  basis  has  been  impos- 
sible. Because  of  the  wartime  control  of  railroads  by  the  govern- 
ment, the  reports  for  the  years  1918,  1919  and  1920  are  not 
directly  comparable  with  those  of  earlier  years.  Secondly,  most 
steam  railroads  engaged  in  interstate  operations  make  no  segre- 
gation of  their  tax  payments  by  States,  in  reporting  to  the  Public 
Service  Commission  or  to  the  Tax  Commission  of  Xew  York 
State.  A  detailed  study  of  representative  railroad  companies  has 
thus  been  impossible,  for  the  small  number  of  companies  for 
which  detailed  figures  were  available  was  not  considered  suffi- 
ciently representative  to  justify  the  drawing  of  conclusions. 

The  ratios  for  steam  railroads  have  therefore  been  derived  in 
another  w^ay.  The  total  amount  paid  in  taxes  to  Xew  York 
State  and  localities  by  all  the  steam  railroads  operating  withic 
the  State  has  been  determined  from  the  records  of  the  Tax  Com 
mission.  From  the  records  of  the  Public  Service  Commissior 
have  been  secured  figures  on  gross  earnings,  operating  expenses 
and  net  income  for  the  period  1911—1919,  inclusive,  for  all  steam 
railroads  operating  in  Xew  York  State.  In  using  the  records  ol 
the  last  two  years  of  this  period  the  actual  net  earnings,  aparl- 
from  the  federal  rental,  have  been  taken.*  An  allocation  has 
been  made  in  each  case  on  the  basis  of  main  track  mileage. 

In  determining  thv'^  ratios  of  taxes  to  earnings  and  expenses 
it  has  been  necessary  to  exclude  figures  for  the  year  1916,  as  the 
fiscal  year  of  the  State  was  changed  in  that  year,  and  the  tax 
receipt  figures  are  correspondingly  distorted. 


♦  For  e.ich  road  niuler  federal  control  the  sum  of  the  net  income  of  the  corpo- 
ration and  the  report*^«l  not  income  of  the  Railroad  Administration,  less  the  amount 
ftf  the  f€deral  rental,  ^*r  been  taken  as  the  actual  net  Incocie  of  the  road. 


--  *iLr. 


202 

Ratios  for  the  steam  railroad  group  have  been  worked  ovit  for 
all  the  railroads  in  the  State,  therefore,  on  the  basis  of  figures 
covering  eight  years  (1911-1919,  inclusive,  excluding  1916). 
Total  tax  receipts  have  been  compared  with  total  gross  earnings, 
expenses,  and  net  income  for  this  period.  The  ratios  of  taxes 
to  gross  earnings  and  ojierating  exi)enses  have  been  based  upon 
returns  from  the  operating  companies  only.  In  securing  the  total 
net  income  of  all  the  railroad  companies  in  the  State,  an  allocated 
portion  of  the  net  income  of  lessor  companies  has  been  added  to 
the  net  income  of  the  operating  companies.* 

Certain  of  the  tables  presented  below  are  based  upou  returns 

from  individual  public  service  corporations.     Steam  railroads  are 

not  included  in  these  tables,  appearing  only  in  the  tables  based 

upon  aggregate  figures. 

Relation    of    income    to    net    worth. —  Before    atteni[)ting    to 

determine  the  relative  weight  of  the  various  taxes  upon  different 

classes  of  utilities,  something  should  be  known  as  to  the  i>ercentage 

of  corporations  in  each  class  operating  at  a  loss,  and  as  to  the 

general  relation  of  income  to  invested  capital.    The  foUow^ing  table 

shows,  for  the  sample  group  studied,  the  number  of  corporations 

in  each  class  operating  at  a  profit  and  operating  at  a  loss  during 

the  ten-year  period  1911-1920: 

*  The  anocation  basis  f©?  ]<^esoi-  roads  was  main  traclc  mileagp,  tlie  basig  employcii 
for  operating  roads. 


i 


203 


TABLE  17 

Summary   of   Public    Service    Coepokations   in   New    York 

State 

The  records  of  which  were  examined  hy  the  Joint  Legislative  Committee  on 

Taxation    and    Retrenchment 

Number  Number 

operating  at  operating  at 

a  profit  (i.  e.,  a  loss  (i.  e.. 

Total          reporting  reporting  an 

Number      an  average  Percentage        average       Percentage 

of  cor-       net  income,  operating           deficit,         operating 

Class  of  utility                    porations     1911-1920)  at  a  profit      1911-1920)      at  a  loss 

Steam    Railroads*     60  43  71.5  17  28.5 

Electric   Railways    56  34  60.7  22  30.3 

Telephone  and  Telegraph  66  62  94.0  4  6.0 

Gas  and  Electric: 

]']lectric       Light       and 

Power    50  45  90.0  6  10.0 

(Jas  and  Electric  (com- 
bined)      22  19  86.5  3  13.5 

Coal    Gas    and    Water 

Gas     18  15  83.5  3  16.5 

Xatural    Gas    18  t  18  100.0      

Total   Gas   and   Electric.  108  1 97  89.8  11  10.2 
Grand  Total,  Public  Ser- 
vice Corporations 290               236             81.5                 54  18.5 

Eiforts  have  been  made  to  make  the  above  samples  as  repre- 
sentative of  the  different  classes  of  utilities  as  possible.  In  making 
the  first  selection,  all  corporations,  the  records  of  which  seemed 
complete  for  ten  years,  as  reported  by  the  Public  Service  Com- 
mission, were  included.  The  inadequate  character  of  some  of 
the  records  made  it  necessary  to  exclude  certain  of  these  corpo- 
rations. In  some  cases  corjwrations  having  partially  complete 
records  were  included,  the  average  being  worked  out  for  a  slightly 
shorter  period. 

It  is  apparent  from  the  figures  given  that  certain  classes  of 
utilities  are  much  better  off  than  others  and  that  the  utility  group 
as  a  whole  is  not  in  as  strong  a  position  as  the  financial  institutions 
studied  in  the  preceding  section.:}:  Thirty-nine  per  cent  of  the 
electric  railways  operated  at  a  loss  during  the  decade  1911-1920, 

*  Based  upon  reports  from  60  operating  steam  railroads  for  the  period  covered. 
Cf.  supra,  pp.  201.  202. 

t  This  figure  includes  one  company  the  net  worth  of  which  was  a  negative 
figure  :  it  is  included  since  it  showed  a  positive  net  income. 

X  CJ.  supra,  pp.  185,  186.  Of  the  total  number  of  financial  institutions  reportin  g 
only  six  showed  an  average  deficit  for  the  period  1918-1920.  This  is  a  shorter 
period,  of  course,  than  that  covered  by  the  utility  figures. 

NoTR. —  This  statement  does  not  include  a  number  of  public  service  corporation! 
the  records  of  which  were  examined  by  the  committee  for  the  ten-year  period- 
1011-1920,  but  which  were  inadequate  for  the  purposes  of  the  committee. 


204 

while  6  per  cent  of  the  telephone  and  telegraph  corporations 
showed  a  net  loss  during  this  period.  Of  the  utility  group  as  a 
whole,  18.5  per  cent  showed  an  average  loss  for  this  period.  The 
number  in  each  class  operating  at  a  deficit  is  shown  in  the  detailed 
tables  which  follow.  The  majority  of  the  corporations  failing 
to  show  a  profit  are  small  companies. 

These  facts  should  be  borne  in  mind  in  considering  the  tax 
figures  presented.*  For  apart  from  the  absolute  size  of  the  taxes, 
the  losses  suitered  by  some  companies  serve  to  increase  materially 
the  average  percentage  of  net  income  paid  in  taxes.  In  the  tables 
dealing  only  with  the  profitable  companies  this  difficulty  is  not 
present. 

For  the  corporations  reporting  an  average  profit  for  the  period 
here  studied,  the  relation  of  net  income  to  net  worth  is  showm  by 
elates  in  the  detailed  tables  following. f 

TABLE  18 

Relation  of  ^N'et  Income  to  ^et  Wokth,  Electric  Kailways 

IN  I^Ew  York  State 

Frequency  Table  Based  upon  the  Average  Anntml  Net  Income  and  the  Average 

Net   Worth  During   the  Period    1911-1920 

Percentage  relation,  net  income  to  net  worth 

Electric  Railways  reporting  from  New  York  State 


Num- 
ber 
in 

class 

Number 

showing 

deficit 

Number  EARxixa 

CLASS 

Less 
than 

2% 

2% 

to 

3.9 

1 

2 

2 
5 

4% 

to 

5.9 

1 
4 
2 

6% 

to 

7.9 

8% 

to 

9.9 

10% 

to 

11.9 

12% 

to 
13.9 

A 

Operating  revenue  $1,003,000  or 
over 

10 
27 
19 

3 

8 
11 

1 
7 
4 

2 
2 

•   • 

1 

1 
2 

•   • 

1 
1 

B 

Operating  revenue   $103,000  to 
J999,993 

C 
Operating    revenue    less    than 
$100,000 

•   ■ 

Total 

58 

22 

12 

7 

4 

1 

3 

2 

♦  As  was  explained  above,  the  net  income  on  which  these  results  are  based  is  net 
income  before  any  taxes  have  been  deducted. 

t  As  explained  above,  steam  railroads  are  not  included  in  the  frequency  tables 
based  upon  returns  from  individual  corporations. 


M 


205 


TABLE  19 

Kelatiois^  of  Net  Income  to  Net  Wobth,  Telephone  and^ 
Telegraph  Corporation's  in  New^  York  State 

Frequency  Table  Based  upon  the  Average  Annu^il  Net  Income  and  the  Average 

Net   Worth   During   the   Period    1911-1920 

Percentage  relation,  net  income  to  net  worth 
Telephone  and  Telegraph  Corporations  reporting  from  New  York  State 


Num- 
ber 
in 
class 

Number 

showing 

deficit 

Number  Earning 

CLASS 

Less 

than 

2% 

2% 

to 

3.9 

*  /c 

to 

5.9 

6% 

to 

7.9 

8% 

to 

9.9 

10% 

to 

11.9 

12% 

to 
13.9 

14% 

to 

15.9 

16% 

to 
17.9 

18% 

to 

19.9 

24% 

t«. 
25.9 

Class  A 

Operating  revenue 
$1,000,000  or  over. 

2 

0 

>    •    ■    . 

.    , 

,    , 

,    , 

1 

1 

•  • 

•  •  • 

Class  B 

Operating  revenue 
$100,000  to  $999 ,999 

7 

0 

.... 

2 

1 

2 

1 

1 

•  .   • 

Class  C 

Operating  revenue 
$25,000  to  $99,999 

10 

0 

.... 

.    . 

,    , 

,    , 

3 

1 

2 

1 

1 

1 

1 

Class  D 

Operating  revenue 
$10,000  to  $24,999 

29 

2 

.... 

1 

4 

8 

4 

4 

2 

2 

1 

1 

•  •  • 

Class  E 

Operating  revenue 
less  than  $10,000.  . 

18 

2 

1 

4 

7 

5 
9 

4 
13 

1 
9 

8 

5 

1 

4 

3 

2 

•  •  • 

Total 

66 

4 

1 

1 

206 

TABLE  20 

Eelation  of  IN'et  Income  to  ^et  Worth,  Electric  Light 

AND  Power  Corporations  in  New  York  State 

Frequency  Tables  Based  upon  the  Average  Annual  Net  Income  and  the  Average 

Net  Worth  During  the  Period  1911-1920 

Percentage  relation',  net  income  to  net  worth 

Electric  Light  and  Power  Corporations  reporting  from  New  York  State 


Num- 
ber 
in 
class 

8 
22 
15 

5 

Number 

showing 

deficit 

1 
2 
2 

Number  Earning 

CLASS 

Less 
than 

2% 

1 
1 

1 
3 

2% 

to 

3.9 

1 
1 

2 

4% 

to 

5.9 

■   • 

1 

2 

3 

6% 

to 

7.9 

3 

2 

5 

8% 

to 

9.9 

■   • 

3 
3 

1 

7 

10% 

to 

11.9 

2 

5 

2 

1 
10 

12% 

to 

13.9 

3 
4 

1 

8 

14% 

to 
15.9 

1 

1 
2 

4 

16% 

to 

17.9 

18% 

to 
19.9 

22% 

to 
23.9 

A 

Operating  revenue  $1,- 
000.000  or  over 

B 
Operating  revenue  $100- 
000  to  $999.999 

C 

Operating  revenue  $25,- 
000  to  $99,999 

D 

Operating  revenue  less 
than  $25,000 

■    • 

1 

•   • 

1 

•  • 

•  • 

1 

«   • 

1 

•  •   > 

1 

•  >    • 

Total 

50 

5 

1 

TABLE  21 
Eelation  of  Net  Income  to  Net  Worth,  Gas  and  Electric 

Corporations  in  New  York  State 
(Combiiiing  gas  and  electric  service.) 

Frequence/  Table  Based  upon  the  Average  Annual  Net  Income  and  the  Average 

Net   Worth   During   the   Period    1911-1920 

Percentage  relation,  net  income  to  net  worth 

Gas  and  Electric  Corporations  reporting  from  New  York  State 


Num- 
ber 
in 

class 

Number 

showing 

deficit 

Number  Earnino 

class 

Less 

than 

2% 

4% 

to 

5.9 

6% 

to 

7.9 

8% 

to 

9.9 

2 

2 
4 

10% 

to 

11.9 

2 

2 

12% 

to 

13.9 

2 
2 

14% 

to 

15.9 

2 
2 

22% 

to 
23.9 

•    • 

1 
1 

a 

Operating  revenue  $1,000,000  or 
over 

8 
14 

1 
2 

1 
1 

1 
2 

1 

2 
3 

•  •    ■ 

B 

Operating  revenue  $100,000  to 
$999.999 

•   «  • 

Total   

22 

3 

2 

3 

X 


207 


TABLE  22 

Relation   of   Net   Income  to  Net   Worth,  Manufactured 

Gas  Companies  in  New  York  State 

Frequency  Table  Based  upon  the  Average  Annual  Net  Income  and  the  Average 

Net   Worth  Durinrf   the  Period   1911-1920 

Percentage  relation,  net  income  to  net  worth 
Manufactured  Gas  Companies  reporting  from  New  York  State 


CLASS 


Operating  revenue  $1,000,000 
or  over 


B 

Operating  revenue  $100,000 
to  $999,999 


Operating    revenue    $25,000 
to  $99,999 


Num- 
ber 
in 

class 


D 

Operating  revenue  less  than 

$25,000 


Total. 


Number 

showing 

deficit 


Number  Earning 


1% 

to 

1.9 


18 


2% 

to 

2.9 


3% 

to 

3.9 


5% 

to 

5.9 


6% 

to 

6.9 


7% 

to 

7.9 


8% 

to 

8.9 


10% 

to 

10.9 


12%  14% 

to      to 

12.9  14.9 


' 


208 


TABLE  23 

Relation  of  ^et  Income  to  [N^et  Worth,  Natural  Gas  Com- 
panies IN  New  York  State 

Frequency  Tiible  Based  upon  the  Average  Annual  'Net  Income  and  the  Average 

Net   Worth  During   the  Period    1911-1920 

Percentage  relation,  net  income  to  net  worth 
Natural  Gas  Companies  reporting  from  New  York  State 


Number  Earning 

Num- 
ber 
in 

class 

2 

CLASS 

Less 
than 

2% 

•  •  •  • 

2% 

to 

3.9 

•  • 

4% 

to 

5.9 

•   • 

6% 

to 

7.9 

8% 

to 

9.9 

1 

10% 

to 
11.9 

12% 

to 

13.9 

1 

14% 

to 

15.9 

•   • 

16% 

to 
17.9 

A 
Operating  revenue  $1,000,000  or  over. . . 

•  •  • 

B 
Operating  revenue  $100,000  to  $999,999. 

6 

•  •  •  • 

,  , 

2 

•   • 

1 

1 

•  • 

1 

1 

C 

Operating  revenue  $25,000  to  $99,999 . .  . 

6 

•  •  •   ■ 

1 

^   ^ 

2 

1 

1 

.. 

.. 

1 

D 
Operating  revenue  less  than  $25.000 .... 

3 

1 

1 
2 

1 
3 

2 

3 

2 

,   , 

,    , 

•  ■  • 

Total 

17 

1 

1 

1 

2 

•.       ♦ 


t     « 


«         • 


209 


T'AELE  24 

Relation    of    IN^et    Income    to    Net   Worth,    All   Gas   and 
Electric  Companies  in  New  York  State 

Frequency  Table  Based  upon  the  Average  Annu4il  Net  Income  and  the  Average 

Net   Worth  During   the   Period    1911-1920 

Percentage  relation,  net  income  to  net  worth 

All  Gas  and  Electric  Companies  reporting  from  New  York  State 


Num- 
brr 
in 

class 

Number 

showing 

deficit 

N^UMBSR  Earning 

CLASS 

Less 

tbSD 

2% 

2% 
to 
3.9 

4% 

to 

5.9 

6% 

to 

7.9 

8% 

to 

9.9 

10% 

io 

11.9 

4 

7 
3 
1 

12% 

to 

13.9 

5 
6 
1 

14% 

to 

15.9 

1 
5 

2 

16% 

to 

17.9 

2 

1 

3 

18% 

to 

19.9 

22% 

to 

23.9 

A 
Operating  revenue  $1,000,000 
or  over 

20 
51 
26 
10 

1 
4 
2 
4 

2 
3 
1 
2 

2 
3 

1 
1 

1 
5 
4 

1 

1 

6 
6 

13 

3 

8 

4 

1 
16 

1 

•  • 

1 

B 

Operating  revenue  $100,000  to 
$999,999 

2 

c 

Operating  revenue  $25,000  to 
$99,999 

D 

Operating  revenue  less  than 
$25,000 

*   * 

Total 

107 

11 

8 

7 

11 

15 

12 

8 

2 

The  marked  variation  in  each  group  in  the  return  upon  capital 
.:rivested  is  apparent.  Electric  railroads,  excluding  those  oper- 
ati'^jg  at  a  loss,  show  a  marked  concentration  in  the  group 
earixirig  less  than  2  jx?r  cent,  though  one  company  earned  as  much 
as  13  p^r  cent  on  its  net  worth.  The  rates  of  return  earned  bv 
telephone  and  telegraph  companies  extend  from  less  than  2  per 
cent  to  25  per  cent,  the  largest  single  group  being  made  up  of 
companies  earning  from  6  per  cent  to  8  per  cent.  The  range  for 
gas  and  electric  companies  extends  to  23  per  cent,  the  largest  single 
class  being  those  earning  from  8  per  cent  to  10  per  cent  over  the 
ten-year  period  covered. 

The  meaning  of  net  income  and  net  worth  should  be  kept  in 
mind  in  using  these  figures.  Net  income  is  income  before  taxes 
have  been  deducted  and  net  worth  is  a  book-keeping  figure,  the 
sum  of  capital,  surplus  and  undivided  profits. 


210 

In  the  following-  tables  the  median  value  of  the  ratio  of  net 
income  to  net  worth  is  presented  for  each  class  of  utility.  In  the 
first  table  this  average  has  been  computed  when  all  companies  in 
a  given  class  have  been  included,  while  in  the  second  table  only 
those  operating  at  a  profit  have  been  included. 


TABLE  25 
Average  Ratio  of  Net  Income  to  Net  Worth 

Public  Service  Corporations  in  New   York   State,   1911-1920 

The  average  employed  in  each  case  is  the  median;  thus  one-lialf  of  the  total 
number  of  corporations  included  in  each  of  the  given  groups  earned  more  than 
the  given  percentage  on  their  net  worth,  while  one-half  earned  less. 

Average  Ratio,  Net  In- 
come  to  Net  Worth 
(expressed  as  a  per- 
centage relation) 


Class  of  Utility 

IHectric  Railways   

lelephone  and  Telegraph .... 

Gas  and  Electric: 

Electric  Light  and  Power 
Gas  and  Electric  (com- 
bined )    

Gas  (manufactured )    

Gas    (natural)    

Total  Gas  and  Electric 


Number  of  Corpora- 
tions Included 


56 
66 


1.0 

7.85 


50 

22 

18 

*17 


10.0 

8.0 
5.5 
8.33 


107 


8.44 


•  One  company  has  been  excluded  because  its  net  worth  was  a  negative  figure. 


211 


TABLE  26 


Average  Ratio  of  Net  Income  to  Net  Worth 

Public  Service  Corporations  Operating  at  a  Profit,  1911-1920 
(Excluding    corporations    showing   a    deficit) 


Class  of  Utility 

Number 
tions 

of  Corpora- 
Includetl 

Electric   Railways    

34 

Telephone  and  Telegraph. . . . 

62 

Gas  and  Electric: 

Electric  Light  and  Power. 

45 

Gas     and     Electric     (com- 

bined ) 

10 

Gas    (manufactured)     .... 

15 

Gas  ( natural )    

17 

Total  Gas  and  Electric 

96 

Average  Ratio,  Net  In- 
come to  Net  Worth 
(expressed  as  a  per- 
centage relation) 

4.00 
6.00 


10.5 

8.75 

6.5 

8.33 


9.12 


These  tables  show  the  median  return  to  the  electric  railways 
to  be  lowest,  but  1.0  per  cent  upon  net  worth,  while  gas  and 
electric  companies  show  the  highest  median  return,  8.44  per  cent 
of  net  worth.  These  rates  are  of  course  higher  when  companies 
operating  at  a  loss  are  excluded,  as  in  the  second  table,  though 
the  relative  standing  of  the  different  classes  is  unchanged. 

The  characteristics  of  the  median  have  been  explained  above." 
In  the  present  case  the  large  number  of  small  companies  earning 
small  returns,  serve  to  make  the  median  value  low.  The  condition 
of  the  larger  companies  is  brought  out  more  clearly  by  a  ratio 
based  upon  aggregate  net  income  and  aggi'egate  net  worth.  In 
computing  this  ratio  the  actual  income  and  net  worth  figures  of 
all  the  corporations  have  been  added,  and  the  relation  of  net 
income  to  net  worth  computed  from  these  aggregate  figures.  The 
following  table  gives  the  ratios  so  computed. 

•  Supra,  pp.  188,  189. 


( 


I 


212 


TABLE  27 
Katio  of  Aggregate  JSTet  Iistcome  to  Aggregate  Net  Wortu 

Public  Service  Corporations  in  New  York  State,  1911-1920 

The  ratio  for  each  class  is  the  percentage  relation  of  aggregate  net  income 
to  aggregate  net  worth.  The  aggregate  figures  used  are  the  sums  of  ten-year 
averages  for  each  of  the  corporations  included. 


Class  of  Utility 

Electric   Railways    

Telephone  and  Telegraph 

Gas  and  Electric: 

Electric  Light  and  Power . . 

Gas  and  Electric  (com- 
bined )     

Gas    (manufactured)     .... 

Gas    (natural)    

Total  Gas  and  Electric 


Number  of  Corpora- 
tions Included 


56 


50 


Ratio  of  Aggregate 
Net  Income  to  Ag- 
gregate Net  Worth 
(expressed  as  a  per- 
centage relation) 

3.47 
9.27 


9.84 


22 

8.« 

18 

9.91 

18 

9 .  18 

108 


9.68 


The  above  ratios  are  based  upon  reports  from  all  the  corpora- 
tions in  each  class  including  those  operating  at  a  loss  The  pre- 
ponderant influence  of  the  large  companies  which  are,  on  the 
whole,  more  profitable,  serves  materially  to  increase  the  rates  as 
compared  with  the  median  values.  It  is  clear  from  these  as  well 
as  from  the  earlier  figiires  that  there  is  a  wide  variation  in  the 
return  earned  upon  net  worth.  Electric  railways  show  an  average 
return  of  3.47  per  cent,  while  gas  and  electric  companies  earn, 
on  the  average,  9.68  per  cent  on  net  worth.* 

The  relative  standing  of  the  different  classes  of  public  utilities 
is  the  same  in  the  table  shown  below,  in  which  the  ratios  are  based 
upon  returns  from  profitable  companies  only. 

♦It  should  be  remembered  tkat  net  income,  as  here  used,  is  a  figure  from  which  taxea  have 
not  been  deducted.     The  importance  of  this  item  is  made  clear  in  the  later  tables. 


213 


TABLE  28 


Ratio  of  Aggregate  !N^et  Income  to  Aggregate  Xet  Worth 

Public  Service  Corporations  Operating  at  a  Profit,  1911-1920 
(Excluding    corporations    showing    a    deficit) 

The  ratio  in  each  class  is  the  percentage  relation  of  aggregate  net  income 
to  aggregate  net  worth.  The  aggregate  figures  used  are  the  sums  of  ten-year 
averages  for  each  of  tlie  corporations  inchided. 


Class  of  Utility 

Electric   Railways    

Telephone  and  Telegraph. . . . 
Gas  and  Electric: 

Electric  Light  and  Power . . 
Gas     and     Electric      (com- 
bined)      

Gas     (manufactured) .... 
Gas    (natural)    

Total  Gas  and  Electric 


Number  of  Corpora- 
tions Included 


34 
62 


45 


Ratio  of  Aggregate 
Net  Income  to  Ag- 
gregate Net  Worth 
(expressed  as  a  per- 
centage  relation) 

4.66 
9.27 


9.87 


19 

9.17 

15 

10.1 

18 

9.18 

97 


9.76 


The  electric  railway  figure  is  materially  higher  in  this  table, 
but  the  other  ratios  are  approximately  the  same.  The  slight 
change  resulting  from  the  elimination  rf  the  companies  operating 
at  a  loss  is  due  to  the  fact  that  these  companies  are,  in  the  main, 
small  and  affect  the  aggregate  figures  but  slightly.  For  many 
purposes  it  is  desirable  that  the  small  companies  should  not  be 
given  too  much  weight,  and  for  this  reason  the  tables  based  upon 
aggregates  are  of  value. 

The  variation  in  earning  power  revealed  above  in  the  compari- 
son of  different  types  of  utilities  is  found  to  prevail  within  each 
class  when  a  division  on  the  basis  of  size  is  made.  The  fol- 
lowing table  gives  ratios  of  aggregate  net  income  to  aggregate 
net  worth,  by  classes,  for  different  types  of  public  service 
corporations. 


214 


TABLE  29 
Ratio  of  Aggregate  Xet  Income  to  Aggregate  Xet  Worth 

Public  Service   Corporations  in  New   York  State,  hy   Classes 
(Ratio  expressed   as   a   percentage  relation) 


Class  A 
Class  B 
Class  C 
Class  D 
Class  E 


Electric 
railway's 


3.9 
1.6 
Negative 


Telephone 

and 
telegraph 


9.3 
8.8 
12.6 
6.4 
3.7 


Electric 

light 

and 

power 


9.9 
9.7 
8.8 
Negative 


Gas 

and 
electric 
(com- 
bined) 


9.2 
6.7 


Manufac- 
tured 
gas 


11.8 
4.8 
4.6 
Negative 


Natural 
gas 


Total 
gas  and 
electric 


9.6 
8.5 
8.2 
2.4 


10.0 

7.9 

7.9 

Negative 


Note. —  For  the  bases  of  classification,  see  the  detailed  tables  above. 

In  securing  the  above  ratios  all  corporations,  whether  operating  at  a  profit  or  at  a  loss,  have 
been  included. 

The  return  upon  the  investment  is  obviously  greater  for  the 
large  companies  than  for  the  small  ones.  The  one  exception  to 
this  is  found  among  the  telephone  companies,  where  the  Class  C 
companies  shoAv  a  greater  proportionate  return  than  do  the  larger 
corj)orations. 

Relative  tax  burden  within  the  public-utility  groups. — 
The  materials  presented  above  have  indicated  the  extent  of  the 
variation  in  earnings  among  public  service  corporations.  A  large 
percentage  in  some  of  the  classes  show  an  absolute  deficit  during 
the  period  1911-1920.  Others,  and  particularly  the  larger  corpo- 
rations, have  earned  adequate  retunis  upon  their  investment. 
This  variation  in  earning  power  means,  of  necessity,  that  the 
burden  of  taxes  has  been  unequal.  Our  present  problem  is  to 
determine  the  degree  of  inequality. 

The  variety  of  taxes  paid  by  each  class  of  utility  renders  the 
problem  more  complex  and  more  difficult  than  that  encountered 
in  studying  the  tax  burden  upon  financial  institutions.  Inasmuch 
as  many  of  the  ratios  given  are  based  upon  the  total  taxes  paid 
by  utilities,  it  is  essential  to  determine  the  relative  importance 
of  the  different  types  of  taxes  paid  by  each  class.  The  absolute 
figures  have  been  presented  in  Table  1  above.  The  following 
table  presents  the  same  facts  upon  a  ]:)ercentage  basis.  All  the 
taxes  paid  by  each  class  of  utility  constituting  100,  this  table 
shows  the  percentage  of  the  total  paid  in  meeting:  each  of  the 
specific  taxes  levied. 


■..  H 


♦  ;  ¥ 


¥      » 

I 


o 
I 

00 
tH 


GO 

t-i 

H 
I— I 

H 
O 

Ph 
o     ^ 

CO       o 


CO 


pq 
^    H 

^     P. 
o 

?^ 
o 

M 

H 

pq 

« 
H 

GO 


P^ 


215 


"3  g 
o 


be  <^^ 
c  1^  c 


a> 


r3«t     "3-2 


H 
P 

O 

GO 


CO 


ONoo 


Total 
State 

rH  ,-4          f-l 

Capital 
stock 

.-ir»     -OS 
^ci    -csi 

CI 


ooo 


Excess 
divi- 
dends 

•       O     -CMO 

Gross 
earn- 
ings 

1—1 
eo 

t^  00  00  00 

1—1 

a     K«ooo 


Total 
special 
fran- 
chise 

50       «  L-S  t*  M 

CO     c:  CO  •^'  tn 

^     •<!»•  ic  ■^  eo 

Special 
fran- 
chise, 
intan- 
gible 

MMi-i-i 

Special 
fran- 
chise, 
tangi- 
ble 

O       ^  CO  Li  .-1 

e^coMw 

Total 
general 
prop- 
erty 

79.1 

36.0 
28.9 
46.3 
54.1 

Per- 
sonal 
prop- 
erty 

i>4 

Real 
prop- 
erty 

78.6 

36.4 
28.4 
45.2 
53.5 

3 

09 

60 

S 

S 


n 

raff 

es 

Si 


8 


•5  c 

fi  a 

mSS 

•4;  «2 

•*  4,  a  o 


c^. 


216 

Steam  railroads,  it  appears,  pay  78.6  per  cent  of  their  total  taxes 
ill  Xew  York  State  on  real  property.  If  the  tangible  properties 
in  the  streets,  taxed  with  the  special  franchises,  are  included, 
88  per  cent  of  the  total  is  paid  in  property  taxes.  The  last  column 
in  the  table  presents  what  is  perhaps  the  most  significant  figiire. 
Total  taxes  paid  to  the  State  (on  gross  earnings  and  capital  stock) 
when  combined  with  the  taxes  paid  on  intangible  elements  in  the 
special  franchise  valuations  constitute  11.3  per  cent  of  all  the 
taxes  paid  by  steam  railroads.  It  is  this  part  of  the  tax  payment 
which  is  directly  comparable  with  the  bank  stock  or  franchise  tax 
paid  by  financial  institutions  and  the  4%  per  cent  tax  on  net 
income  paid  by  business  corporations. 

This  particular  percentage  is  lowest  in  the  case  of  steam  rail- 
roads. For  electric  railways  the  sum  of  State  taxes  and  taxes  on 
intangible  elements  in  the  special  franchise  constitutes  35.0  per 
cent  of  the  total  taxes  paid,  for  telephone  and  telegraph  corpora- 
tions 37.6  per  cent,  for  gas  and  electric  companies  28.2  per  cent, 
and  for  the  entire  public  utility  group  24.8  per  cent  of  total  tax 
payments.  These  percentages  should  be  borne  in  mind  when  the 
tax  ratios  are  being  studied. 

For  the  purpose  of  studying  the  relative  burden  of  taxes  within 
the  public  utility  group  as  a  whole,  three  standards  have  been 
utilized,  gross  earnings  from  ]^ew  York  business,  operating 
expenses  in  Xew  l^ork  State,  and  net  income  from  Xew  York 
business.  Taxes  paid  in  Xew  York  have  been  compared  with 
each  of  these  standards. 

In  the  case  of  corporations  doing  an  interstate  business,  it  has 
been  necessary  to  allocate  part  of  the  total  gross  earnings,  oper- 
ating expenses  and  net  income  to  Xew  York.  The  basis  of  allo- 
cation has  been  main  track  mileage  in  the  case  of  steam  railroads 
and  electric  railways.  In  the  case  of  telephone  companies  doing 
an  interstate  business,  the  general  allocation  basis  has  been  that 
set  forth  in  Art.  9,  §  182  of  the  Tax  Law,  based  upon  the  location 
of  gi'oss  assets,  though  for  certain  purposes  wire  mileage  and  num- 
ber of  stations  have  been  used.  The  interstate  element  is  not 
important  enough  in  the  business  of  gas  and  electric  companies 
to  give  rise  to  an  allocation  problem. 


«    * 


■.  I    .' 


I  * 


♦* 


V 


1%       • 


217 


Relation  of  Taxes  to  Gross  Earnings. —  In  the  following 
tables  the  relations  of  total  State  and  local  taxes  to  gross  earnings 
from  Xew  York  business  ai'e  shown,  in  the  form  of  frequency 
tables,  for  the  diiferent  classes  of  public  service  corporations.  The 
tables  are  based  upon  the  samples  studied. 

TABLE  31 
Relation  of  Total  State  and  Local  Taxes  to  Gross  Earn- 
ings, Electric  Railways  in  Xew  York  State 

Frequency   Table  Based   upmi   the   Average   Annual   Tax   Payments   and    the 
Average  Annual  Gross  Earnings  During   the  Period   1911-1920 

Percentaj^e  of  gross  earnings  paid  in  total  State  and  local  taxes 
Electric  Railtvays  reporting  from  New  York  State 


\  i 


Num- 
ber 
in 

claas 

Number 

Paying 

CLASS 

Less 
than 

2% 

2% 

to 

3.9 

4% 
to 
5.9 

6% 

to 

7.9 

8% 

to 

9.9 

10% 

to 
11.9 

12% 

to 
13.9 

14% 

to 
15.9 

A 

Operating   revenue  $1,000,000 
or  over 

10 
27 
19 

.... 

6 

7 

4 
12 
10 

3 
5 

1 

2 

3 

•    •    ■   ■ 

1 

1 

B 

Operating  revenue  $100,000  to 
$999,999 

C 
Operating    revenue   less    than 
$100,000 

1 

Total , 

56 

.... 

13 

26 

9 

2 

3 

1 

2 

•  •> 


218 

TABLE  32 
Relation  of  Total  State  and  Local  Taxes  to  Gross  Earn- 
ings,  Telephone   and   Telegraph   Corporations   in   New 
York  State 

Frequency   TaUe  Based   upon   the   Average   Annual   Tax   P^f^^'\^^'^   *^'^ 
Average  Annual  Gross  Ewmings  During   the  Period   1911-15^20 

Percentage  of  gross  earnings  paid  in  total  State  and  local  taxes 
Telephone  and  Telegraph  Corporations  reporting  from  New  York  State 


^     ^■.^^.. ^                M. 

Num- 
ber 
in 
class 

Nu.MBER  P.VYIVO 

CLASS 

than 

1% 

1% 

to 
1.9 

2% 

to 

2.9 

3% 

to 

3.9 

4% 

to 

4.9 

5% 
to 
5.9 

6% 

to 

6.9 

7% 

to 

7.9 

8% 

to 

8.9 

A 

Operating  revenue  $1,000,000  or  over.    . 

2 

.... 

. . 

1 

1 

•   •   » 

B 

Operating  revenue  $100,000  to  $999,999. 

7 

.... 

3 

2 

2 

•  >   • 

C 

Operating  revenue  $25,000  to  $99.999. .    . 

10 

.... 

1 

3 

4 

2 

•   •   • 

D 

Operating  revenue  $10,000  to  $24.999. . . 

29 

.... 

4 

9 

11 

3 

1 

1 

e 

Operating  revenue  less  than  $10,000 

18 

1 
1 

2 

7 

4 
19 

4 
22 

2 
10 

3 
4 

2 
2 

Tnfjil                  

66 

.... 

1 

1         1         1 

' 

_ ... _ 

TABLE  33 
Relation  of  Total  State  and  Local  Taxes  to  Gross  Earn- 
ings,  Electric  Light  and  Power  Corporations  in  New 
York  State 

Frequency   Table   Based   upon    the   Averaue   AnnuM   Tax   P^V^^f.^J'J'^   *^^ 
Average  Annual  Gross  Earnings  During  the  Period  1911-1920 

Percentage  of  gross  earnings  paid  in  total  State  and  local  taxes 
Electric  Light  and  Power  Corporations  reporting  from  New  York  State 


class 


Num- 
ber 
in 
class 


Number  Pwino 


1% 
to 
1.9 


2% 

to 

2.9 


Operating   revenue  $1,009,009  or 
over 

B 

Operating    revenue    $100,003   to 

$999,999 


Operating    revenue    $23,000     to 
$99,939 

D 

Operating     reven  e     less     than 
$25.00 


8 


22 


15 


Total . 


3% 

to 

3.9 


4% 

to 

4.9 


50 


5% 

to 

5.9 


6% 

to 

6.9 


1 
4 


7% 

to 

7.9 


8% 

to 

8.9 


9% 

to 

9.9 


12% 

to 

12.9 


44% 

to 
44  9 


10      14 


6 


219 

TABLE  34 
Relation  of  Total  State  and  Local  Taxes  to  Gross  Earn- 
ings, Gas  and  Electric  Corporations  in  New  York  State 

(Combining  gas  and  electric  service.) 

Frequency   Table   Based  upon   the   Average   Annual   Tax   Payments   and   the 
Average  Annual  Gross  Earnings  During  the  Period   1911-1920 

Percentage  of  gross  earnings  paid  in  total  State  and  local  taxes 

Gas  and  Electric  Corporations  reporting  from  New  York  State 


class 


Operating  revenue  $1,000,000  or  over. 

B 

Operating  revenue  $100,000  to  $999,999 

Total 


Num- 
ber 
in 
class 


8 


14 
22 


Number  P.vyino 


2% 

to 

2.9 


3% 

to 

3.9 


3 
3 


4% 

to 

4.9 


6 

8 


6% 

to 

6.9 

1 
2 

7% 

to 

7.9 

9% 

to 

9.9 

2 

1 

1 

•  ■   •  •  • 

3 

3 

1 

TABLE  35 
Relation  of  Total  State  and  Local  Taxes  to  Gross  Earn- 
ings, Manufactured  Gas  Companies  in  Xew  York  State 

Frequency   Table   Based  upon   the   Average   Annual   Tax   Payments   and   the 
Average  Annual   Gross  Earnings  During   the  Period   1911-1920 

Percentage  of  gross  earnings  paid  in  total  State  and  local  taxes 

Manufactured  Gas  Corporations  reporting  from  New  York  State 


Number 

in 

class 

2% 

to 

2.9 

Number  Patxnq 

class 

3% 

to 

3.9 

4% 

to 

4.9 

5% 

to 

5.9 

6% 

to 

6.9 

1 
1 

7% 

to 

7.9 

A 

Operating  revenue  $1,000,000 
or  over 

2 
9 
5 
2 

1 

3 

1 

2 

3 
5 

10 

B 

Operating   revenue   $100,000 
to  $99  >.999 

1 

C 

Operating  revenue  $25,000  to 
$99,999 

D 

Operating   revenue  leas   than 
$25,00J 

Total 

18 

1 

3 

1 

2 

1 

'1 


u 


220 


I 


TABLE  36 

Kelation  of  Total  State  and  Local  Taxes  to  Gross  Earn- 
ings, ]Ji[ATURAL  Gas  Companies  in  New  York  State 

Frequency   Table  Based  upon   the  Average  Annual  Tax   Payments   and   the 
Average  Annual   Gross  Earnings  During  the  Period  1911-1920 

Percentage  of  gross  earnings  paid  in  total  State  and  local  taxes 

Natural   Gas   Corporations  reporting  from  New   York   State 


Num- 
ber 
in 
class 

Number  Paying 

CLASS 

Less 

than 

1% 

1% 
to 
1.9 

2% 

to 

2.9 

•i  /O 

to 
3.9 

4% 

to 

4.9 

5% 

to 

5.9 

7% 

to 

7.9 

8% 

to 

8.9 

9% 

to 

9.9 

A 

Operating  revenue  $1,000,000  or  over. .  . 

B 

Operating  revenue  $100,000  to  $999,999. 

C 

Operating  revenue  $25,000  to  $99,999.  .  . 

D 
Operating  revenue  less  than  25,000 

2 
6 

7 
3 

1 
1 

1 

•  • 

•  • 

2 

•   • 

1 
3 

1 

3 

1 
5 

1 
1 

2 
2 

•   • 

1 

1 

1 
1 

•  ■  • 

•  •   • 

1 
1 

Total 

18 

2 

1 

2 

221 


TABLE  'dl 

Relation  of  Total  State  and  Local  Taxes  to  Gross  Earn- 
ings, All  Gas  and  Electric  Companies  in  IsTew  York 
State 

Frequency   Tahle   Based  upon   the  Average   Avmml   Tax   Payments   and   the 
Average  Annual   Gross  Earnings  During   the   Period   1911-1920 

Percentage  of  gross  earnings  paid  in  total  State  and  local  taxes 
All  Gas  and  Electric  Companies  reporting  from  New  York  State 


CLASS 


Num- 
ber 
in 

class 


A 

Operating     revenue     $1,- 
000,000  or  over 

B 

Operating  revenue  $100,- 
000  to  $999,999 

C 
Operating  revenue  $25,000 
to  $99,999 

D 

Operating     revenue     less 
than  $25,000 

Total 


20 


51 


27  ( 


10 


Number  Fatwo 


108 


Less 

1% 

2% 

3% 

than 

to 

to 

to 

1% 

1.9 

2.9 

3.9 

1 

1 

1 

•   • 

1 

3 

4 

12 

.... 

2 

5 

•   •    ■    ■ 

1 
5 

2 
9 

4 
21 

2 

4% 

to 

4.9 


5% 

to 

5.9 


6% 

to 

6.9 


7% 

to 

7.9 


8% 

to 

8.9 


3 

5 

3 

2 

14 

9 

4 

4 

7 

7 

2 

1 

1 

.. 

24 

21 

10 

7 

9% 

to 

9.9 


12% 
to 


44% 
to 


12.9  44.9 


1        2 


1 

1 


It  is  apparent  that  when  the  standard  of  gross  earnings  is  used 
a  wide  variation  in  relative  tax  burden  is  found.  Electric  rail- 
ways show  a  range  of  14  per  cent,  from  2  per  cent  to  16  per  cent, 
with  a  marked  concentration  in  the  group  paying  from  4  per  cent 
to  6  per  cent  of  gross  earnings  in  taxes.  Telephone  and  telegi*aph 
corporations  pay  from  1  per  cent  to  9  per  cent  of  their  gross  earn- 
ings in  taxesy  the  largest  single  group  paying  from  4  per  cent  to 
5  per  cent.  The  range  of  gas  and  electric  companies  is  from  less 
than  1  per  cent  to  45  per  cent,  the  largest  class  being  that  paying 
from  4  per  cent  to  5  per  cent. 


i 


222 

These  tables  are  summarized  below,  an  average  value  being 
picked  out  for  each  class  of  utility.  The  average  selected  is  the 
median,  the  use  of  which  has  been  explained  above. 

TABLE  38 

Average  Eatio  of  Total  State  and  Local  Taxes  to  Gross 

Earnings 

Public  Service  Corporations  in  New   York  State,   1911-1920 

The  average  employed  in  each  case  is  the  median ;  thus  one-half  of  the  total 
number  of  corporations  included  in  each  of  the  given  groups  paid  more  than 
the  given  percentage  of  their  gross  earnings  in  meeting  the  taxes  named,  while 
one-half  paid  less. 


Class  of  Utility 

Electric   Railways    

Telephone    and    Telegraph . . . 
Gas  and  Electric: 

Electric  Light  and   Power. 
Gas     and     Electric      (com- 
bined )     

Gas    (manufactured)    

Gas   ( natural )    

Total  Gas  and  Electric 


Number  of  Corpora- 
tions Included 


56 
67 


oO 

22 

18 
18 


Average  Ratio,  Total 
State  and  Local 
Taxes  to  Gross 
Earnings  (expressed 
as  a  percentage  re- 
lation) 

5.15 
4.27 

4.5 

4.87 
5.40 
3.60 


108 


4.71 


Accepting  the  median  value  as  representative,  it  is  seen  that 
the  typical  electric  railway  paid  5.15  i^ei-  cent,  the  typical 
tt-lephone  and  telegraph  company  4.27  per  cent,  and  the  typical  gas 
and  electric  company  4.71  per  cent.  The  electric  railway  group 
shows  the  highest  average  found  in  the  four  main  classes. 

The  above  figures  describe  the  situation  of  typical  companies 
in  each  class.  It  is  desirable  to  supplement  these  by  ratios  based 
upon  total  tax  payments  and  total  gross  earnings  in  ^N'ew  York 
for  each  class  of  utility.  The  following  table  presents  ratios 
based  upon  these  aggregate  figures. 


223 


TABLE  39 

Ratio  of  Aggiiegate  State  and  Local  Taxes  to  A(iGREGATE 

Gross  Earnings 

Public  Service   Corporations   in   Xeio   York   Slate,    1911-1920 

The  ratio  for  each  class  is  the  percentage  relation  of  aggregate  State  and 
local  taxes  to  aggregate  gross  earnings.  The  aggregate  figures  used  are  the 
sums  of  ten-year  averages  for  each  of  the  corporations  included.* 

Ratio  of  Aggregate 
State  and  Local 
Taxes  to  Aggregate 
Gross  Earuiugs  (ex- 

Class  of  Utility 

Steam   Railroads    

Electric   Railways    

Telephone  and  Telegraph .... 
Gas  and  Electric: 

Electric  Light  and  Power . , 

Gas  and  Electric  (com 
bined)    

Gas    (manufactured)    

Gas   ( natural )    

Total  Gas  and  Electric 


In  the  above  table  the  ratio  for  steam  railrcads  is  lower  than 
for  the  other  utility  groups,  with  telephone  and  telegraph  corpora- 
tions next.  Electric  railroads,  with  a  ratio  of  7.24,  stand  at  the 
upper  limit. 

Relation  of  Taxes  to  Operating  Expenses. —  Another  basis 
of  comparison  which,  like  the  one  preceding,  avoids  some  of  the 
difficulties  involved  in  using  the  net  income  ])asis,  is  that  of 
operating  expenses.  By  determining  the  relation  of  taxes  to 
operating  expenses  for  different  classes  of  utilities,  it  is  possible 
to  study  the  degree  of  variation  in  tax  burden.  The  tables  immeili- 
ately  following  show^  the  relation  between  these  two  figures  for  the 
diiferent  utility  groups.  Operating  exi:>en?es  are  expenses  allo- 
cated to  JSTew  York  business  on  the  bases  explained  above. 

♦  For  the  basis  of  the  steam  railroad  figures,  c/.  supra,  p.  2>l. 


Number  of  Corpora- 
tions Included 

pressed 
centage 

as    a    per- 
relatioD) 

60 
56 
66 

3.9 
7.24 

5.0 

50 

6.9 

22 
18 

18 

6.3 
5.5 
4.4 

108 

6.5 

224 


TABLE  40 

Kelation  of  Total  State  and  Locai.  Taxes  to  Operating 
Expenses,  Electric  Railways  in  !N'ew  York  State 

Frequency  Table  Based  upon  the  Average  Annual  Tax  Payments  and  Average 
Annual  Operating  Expenses  During  the  Period  1911-1920 

Percentage  of  operating  expenses  paid  in  total  State  and  local  taxes 

Electric  Railways  reporting  from  New  York  State 


CLASS 


A 

Operating  revenue  $1,000,003  or  over. 

B 

Operating  revenue  S100,000  to  $999,999 

C 

Operating  revenue  leas  than  $100,090. 

Total 


Num- 
ber 
in 

class 


10 

27 
19 


56 


NuilBER  PaTINO 


Less 
than 

6% 


13 


6% 

to 

11.9 


18 


12% 

to 
17.9 


18% 

to 
23.9 


23 


29 


Supplementary  Table:      Detailed  Classification  of  Com- 
panies Paying  Less  than  12  Per  Cent 


class 

Number 

in 

class 

3% 

to 

3.9 

■    • 

1 

1 

2 

4% 

to 

4.9 

1 
3 
5 

5% 

to 

5.9 

2 
3 

7 

«% 

to 

6.9 

7% 

to 

7.9 

8% 
to 
8.9 

1 
3 

1 

5 

9% 

to 

9.9 

2 
1 
1 

|io% 

to 
10.9 

1 
3 

•   • 

11% 

to 

11.9 

a   

8 
25 
19 

5 
3 

8 

5 
1 

6 

1 

B 

1 

c 

Total 

52 

9 

12 

4 

4 

2 

4\ 


ij 


5m 


TABLE  41 

Relation  of  Total  State  and  Local  Taxes  to  Operating 
Expenses,  Telephone  and  Telegraph  Corporations  in 
New  York  State 

Frequency  Table  Based  upon  the  Average  Annual  Tax  Payments  and  Average 
Annual  Opei-ating  Expenses  During  the  Period  1911-1920 

Percentage  of  operating  expenses  paid  in  total  State  and  local  taxes 

Telephone  and  Telegraph  Corporations  reporting  from  New  York  State 


class 


a 

Operating  revenue  $1 ,000.000 
or  over 

B 

Operating    revenue  $100,00C 
to  $999,999 

c 

Operating    revenue     $2.'),00f 
to  $99.999 

D 

Operating    revenue    $10,00C 
to»24,999 

E 
Operating  revenue  less  thai: 
10,000 

Total 


Num- 
ber 
in 

class 


10 


29 


18 


66 


Number  Paying 


2% 

to 

2.9 


3% 

to 

3.9 


2 
5 


4% 

to 

4.9 


11 

6 
22 


5% 

to 

5.9 


6% 
to 
6.9 


14 


7% 

to 

7.9 


8% 

to 

8.9 


9% 

to 

9.9 


10% 

to 

10.9 


12% 

to 
12.9 


32% 

to 
32  9 


38% 

to 

38.0 


8 


226 


227 


TABLE  42 

Relation  of  Total  State  and  Local  Taxes  to  Operating 
Expenses,  Electric  Light  and  Power  Corporations  in 
New  York  State 

Frequency  Table  Based  upon  the  Average  Annual  Tax  Payments  and  Average 
Annual  Operating  Expenses  During  the  Period  1911-1920 

Percentage  of  operating  expenses  paid  in  total  State  and  local  taxes 

Electric  Light  and  Power  Corporations  in  New  York  State 


CLASS 


Num- 
ber 
in 

class 


Number  Patino 


than 

4% 


4% 

to 

7.9 


A 

Operating  revenue  $1,000,000  or  over. . , 

B 
Operating  revenue  $100,000  to  $999,999 

C 

Operating  revenue  $25,000  to  $99,999. . . 

D 

Operating  revenue  less  than  $25,000 

Total 


8 
22 
15 

5 


50 


1 
6 


8% 

to 

11.9 


11 


8 


25 


8 


12% 

to 

15.9 


20% 

to 

23.9 


32% 

to 

35.9 


84% 

to 
87.9 


1     ' 


O  A 


« 


TABLE  43 
Relation  of  Total  State  and  Local  Taxes  to  Operating 
Expenses,  Gas  and  Electric  Corporations  in  New  York 
State 

(Combining  gas  and  electric  service.) 

Frequency  Table  Based  upon  the  Average  Anmml  Tax  Payments  and  Averaqe 
Anmml  Operating  Expenses  During  the  Period  1911-1920 

Percentage  of  operating  expenses  paid  in  total  State  and  local  taxes 

Gas  and  Electric  Corporations  reporting  from  New  York  State 


Num- 
ber 
in 
class 

Number  Patino 

class 

3% 

to 

3.9 

2 
2 

4% 

to 

4.9 

5% 

to 

5.9 

6% 

to 

6.9 

7% 

to 

7.9 

8% 

to 

8.9 

10% 

to 

10.9 

11% 

to 

11.9 

13% 

to 

13.9 

18% 

to 

18.9 

A 
Operating  revenue  $1,000,000  or  over. 

^                          B 

Operating  revenue  $100,000  to  $999,999 

8 
14 

2 
2 

1 
1 

1 
2 

2 
2 

•  • 

1 

1 
2 

1 
2 

1 
1 

1 

Total 

22 

2 

4 

1 

3 

3 

o 

1 

228 


TABLE  44 
Relation  of  Total  State  and  Local  Ta:xes  to  Operating 
Expenses,  Manufactured  Gas  Corporations  in  Xew  York 
State 

Frequency  Table  Based  upon  the  Average  Annual  Tax  Payments  and  Average 
Annual  Operating  Expenses  During  the  Period  1911-1920 

Percentage  of  operating  expenses  paid  in  total  State  and  local  taxes 
Manufactured  Gas  Corporations  reporting  from  New  York  State 


CLASS 


A 

Operating  revenue  $1,000,000 
or  over 

B 

Operating  revenue  $100,000  to 
$999,999 

C 

Operating  revenue  $25,000  to 
$99,999 

D 

Operating   revenue    less    than 
$25,000 

Total 


Number  Paying 

Num- 
ber 

in 
class 

3% 

to 

3.9 

4% 

to 

4.9 

5% 

to 

5.9 

6% 

to 

6.9 

7% 

to 

7.9 

8% 

to 

8.9 

9% 

to 

9.9 

12% 

to 

12.9 

2 

•  •   -    • 

•     •     ■     a 

1 

.... 

.... 

1 

•  •  <   • 

9 

1 

2 

1 

1 

2 

•   •   •   • 

1 

1 

5 

.... 

.... 

.... 

3 

2 

.... 

.... 

2 

1 

•   •   •    • 

•  •   •  ■ 

1 

•  •  •  • 

■    •   •   • 

•  •  •  • 

18 

2 

2 

2 

5 

4 

1 

1 

1 

229 


TABLE  45 

Relation  of  Total  State  and  Local  Taxes  to  Operating 
Expenses,  ^N'atural  Gas  Corporations  in  New  York  State 

Frequency  Table  Based  upon  the  Average  Annual  Tax  Payments  and  Average 
Annual  Operating  Expenses  During  the  Period  1911-1920 

Percentage  of  operating  expenses  paid  in  total  State  and  local  taxes 
Natural   Gas   Corporations  reporting  from  New  York  State 


class 


a 

Operating  revenue  $1,000,000 
or  over 

B 

Operating  revenue  $100,000  to 
$999,999 

C 

Operating  revenue  $25,000  to 
$99,999 

D 
Operating   revenue   less    than 
$25,000 

Total 


Num- 
ber 
in 

class 


18 


Number  Patino 


Less 

than 

2% 


2% 

to 

3.9 


1 
4 


4% 

to 

5.9 


6% 

to 

7.9 


10% 

to 

11.9 


12% 

to 

13.9 


14% 

to 

15.9 


16% 

to 

17.« 


I 


230 


TABLE  46 
Eelation  of  Total  State  and  Local  Taxes  to  Operating 
Expenses,  All  Gas  and  Electric  Companies  in  ISTew  York 
State 

Frequency  Table  Based  upon  the  Average  Annual  Tax  Payments  and  Average 
An/nual  Operating  Expenses  During  the  Period  1911-1920 

Percentage  of  operating  expenses  paid  in  total  State  and  local  taxes 

All  Gas  and  Electric  Companies  reporting  from  New  York  State 


CLASS 


A 
Operating  revenue  $1,000,000  or  over.  . 

B 

Operating  revenue  $100,000  to  $999,999 

C 

Operating  revenue  $25,000  to  $99,999.  . 

D 
Operating  revenue  less  than  $25,000.  . . 

Total 


Num- 
ber 
in 

class 


20 
51 
27 
10 


108 


Number  Paying 


Less 

than 

4% 


15 


4% 

to 

7.9 


25 


16 


6 


54 


8% 

to 

11.9 


6 


11 


22 


12% 

to 

15.9 


11 


16% 

to 

19.9 


20% 

to 
23.9 


32% 

to 
35.9 


84% 

to 
87.9 


A  range  of  from  2  per  cent  to  85  per  cent  is  found  in  these 
ratios,  the  latter  being  a  quite  exceptional  case  in  the  electrical 
companies  group.  The  ratio  does  not  exceed  12  per  cent  for  the 
large  mass  of  utilities,  though  the  points  of  concentration  vary 
somewhat  for  the  different  classes  of  public  service  corporations. 
The  outstanding  fact  is  that  when  the  tax  burden  is  measured  by 
this  standard  a  wide  variation  is  again  found. 

The  following  table  presents  a  summary  of  the  situation  in  the 
different  classes,  the  median  case  in  each  group  being  picked  out 
as  typical. 


231 


TABLE  47 
Average    Ratio    of    Total    State    and    Local    Taxes    to 

Operating  Expenses 

Public  Service  Corporations  in  New  York  State,   1911-1920 

The  average  employed  in  each  ca^e  is  the  median;  thus  one-half  of  the  total 

number  of  corporations  included  in  each  of  the  given  groups  paid  more  than 

the  given  percentage  of  their  operating  expenses  in  meeting  the  taxes  named, 

while  one-half  paid  less. 

Average    Ratio,    Total 
State      and       Local 
Taxes  to  Operating 
Expenses  (expressed 
Number    of    Corpora-  as  a  percentage  re- 

Class  of  Utility  tions  Included  lation) 

Electric    Railways    56  6 .  87 

Telephone  and  Telegraph (17  5.32 

Gas  and  Electric: 

Electric  Light  and  Power.  50  7.04 

Gas     and     Electric     (com- 
bined)      22  7.5 

Gas   (manufactured)    18  6.60 

Gas   (natural)    18  6 

Total  Gas  and  Electric 108  6.1»0 

The  variation  here  is  not  ais  pronounced  as  in  certain  of  the 
other  ratios,  the  typical  case  being  5.32  per  cent  in  the  telephone 
group,  and  6.9  per  cent  in  the  gas  and  electric  group. 

Much  more  pronounced  is  the  variation  found  when  ratios  based 
on  aggregate  taxes  and  aggregate  operating  expenses  in  ^ew  York 
are  computed.     These  ratios  are  presented  below: 

TABLE  48 
Ratio  of  Aggregate  State  and  Local  Taxes  to  Operating 

Expenses 

Public  Service   Corporations  in   New  York   State,   1911-1920 
The  ratio  for  each  class  is  the  percentage  relation  of  aggregate  State  and 
local  taxes  to  operating  expenses.     The  aggregate  figures  used  are  the  sums 
of  ten-year  averages  for  each  of  the  corporations  included.* 

Ratio     of      Aggregate 

State       and       Local 

Taxes   to   Operating 

Expenses  (expressed 

Number  of  Corpora-  as  a  percentage  rela- 

Class    of    Utility  tions  Included  tion) 

Steam   Railroads    60  5.45 

Electric   Railways    5©  11.58 

Telephone  and  Telegraph 66  8.50 

Gas  and  Electric: 
Electric  Light  and  Power.  50  13.2 
Gas     and     Electric     (com- 
bined)                    22  10.4 

Gas   (manufactured)    18  8.2 

Gas    ( natural )    18  8.5 

Total  Gas  and  Electric 108  11 .60 


*  For  tbft  b4ii«  0^  tl»e  vteam  niiUvM  flgurM^  ef,  tupra,  p.  9  1 


232 

For  steam  railroads  taxes  constitute  5.45  per  cent  of  total 
operating  expenses,  while  for  electric  railways  the  figure  is  11.58 
per  cent,  and  for  gas  and  electric  companies  11.60  per  cent. 
This  wide  variation  is,  of  course,  partially  due  to  different  operat- 
ing conditions. 

Relation  of  Total  Taxes  to  Net  Income. —  The  two  stand 
ards  used  above,  gross  earnings  and  operating  expenses,  are  useful 
for  certain  purposes,  but  obviously  do  not  constitute  a  measure 
of  tax-paying  ability.  They  are  not,  therefore,  adequate  as 
standards  by  which  tax  burden  may  be  measured.  :N'et  income 
is  the  best  single  standard  of  tax-paying  ability,  and  the  per- 
centage of  net  income  paid  in  taxes  is,  therefore,  the  figure  which 
best  measures  tax  burden.  This  ratio  has  been  determined  for 
the  different  classes  of  utilities,  and  the  results  are  presented  in 
the  tables  which  follow.  In  using  these  tables,  the  exact  meaning 
of  net  income  should  be  understood.  The  sense  in  which  that 
term  is  here  used  has  been  explained  above.* 

The  first  set  of  tables  show  the  relation  of  total  State  and  loca- 
taxes  to  net  income  for  the  corporations  included  in  the  study, 
the  distribution  by  classes  being  given. 

TABLE  49 

Relation  of  Total  State  and  Local  Taxes  to  Net  Income, 
Electric  Railways  in  New  Yoek  State 

Frequency  Table  Based  upon  the  Average  Annual  Tax  Payments  and  the 
Average  Annual  Net  Income  Previous  to  any  Deduction  iw  Taxes  Durina 
the  Period  1911-1920  '^ 


1  — 


Percentage  of  net  income  paid  in  total  State  and  local  taxes 
Electric  Railways  reporting  from  Neio  York  State 


Num- 
ber 
in 
class 

NCMBBR  PaTINQ 

CLASS 

Less 
than 
50% 

50% 

to 
99.9 

2 
4 

1 

100% 

to 
149.9 

150% 

to 
199.9 

200% 

to 
249.9 

250% 

to 
299.9 

600% 

to 
649.9 

A 

Operating  revenue  $1,030,000  or  over. 

B 
Opflratins  revenue  $100,000  to  $999,999 

C 
OiMM^ting  revenue  less  than  $100,000. 

7 

19 

8 

4 

10 

4 

1 
1 
2 

•  •  •   • 

•  •   •   • 

•  •   •   • 

•  •  •   • 

•  •   •   • 

3 

•  •  •   • 

3 

•  •    •     a 

1 

ToUJ 

34 

18 

7 

4 

.... 

1 

3             1 

*  Cf.  supra,  p.      9 

. 

»       « 


233  : 

SUPPLEMENTABT    TaBLS;        DETAILED    CLASSIFICATION    O^    COM- 
PANIES Paying  Lfi:^  than  50  Peb  Cent 


CLASS 

Number 

in 

class 

15% 

to 

19% 

20% 
to 

24% 

25% 
to 

29% 

30% 

to 
34% 

35% 

to 
39% 

40% 

o 
44% 

45% 

to 
49% 

A 

4 
10 

4 

•  •  •  • 

1 

1 

•  •  •   * 

•  •  •    • 

1 

1 
1 

•   •   •   • 

1 
2 

1 

1 
4 

•  •  ■   • 

•  •   •   • 

1 

B 

o 

c ::;::::::::::: 

1 

Total 

18 

2 

1 

2 

4 

5 

•  •  •  • 

4 

TABLE  50 

Relation  of  Total  State  and  Local  Taxes  to  CNTet  Income, 
Telephone  and  Telegeaph  Coepobations,  New  Yobk 
State 

Frequency  Table  Based  upon  the  Average  Annual  Tax  Payments  and  the 
Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes  Durina 
the  Period  1911-1^20 

Percentage  of  net  income  paid  in  total  State  and  local  taxes 

Telephone  and  Telegraph  Corporations  reporting  from  New  York  State 


Num- 
ber 
in 
class 

Number  Paying 

CLASS 

Less 
than 
10% 

10% 

to 
19.9 

20% 

to 
29.9 

30% 

to 
39.9 

40% 

to 
49.9 

50% 

to 
59.9 

60% 

to 
69.9 

70% 

to 
79.9 

130% 

to 
139.9 

A 

Operating  revenue  $1,- 

000,000  or  over 

B 

Operating  revenue 
$100,000  to  $999,999. 

c 

Operating  revenue  $25,- 

000  to  $99,999 

D 
Operating  revenue  $10,- 

000  to  $24,999 

E 
Operating  revenue  less 
than  $10.000 

2 

7 
10 
27 
16 

1 

•  •  •  • 

•  •  •   • 

2 
1 

•  •  •    • 

2 
4 

9 
6 

1 
3 
4 
9 
2 

•  •  •   • 

1 
1 

•   •   •    • 

1 
3 
3 

•  •   •    • 

•  •   >    • 

•  •   ■   • 

1 
1 

•   •   ■   • 

2 
3 

•    •   •    • 

1 

1 

Total 

62 

4 

21 

19 

2 

7 

2 

5 

1 

1 

2a4 


TABLE  51 

Eelation  of  Total  State  and  Local  Taxes  to  Net  Income, 
Electbic  Light  and  Power  Cokporations  in  New  York 
State 

Frequency  Table  Based  upon  the  Average  Annual  Tax  Payments  a/nd  the 
Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes  Durina 
the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  State  and  local  taxes 
Electric  Light  and  Power  Corporations  reporting  from  New  York  State 


Num- 

Nttmbkr Patino 

1         1         1         1         i 

, 

CLASS 

ber 

in 

class 

Less 
than 
10% 

10% 

to 
19.9 

20% 

to 
29.9 

30% 

to 
39.9 

40% 

to 
49.9 

50% 

to 

59.9 

60% 

to 
69.9 

70% 

to 

79.9 

300% 

to 
309.9 

A 

Operatin£  revenue  $1,000,000  or  over. . . 

8 

.. 

2 

4 

1 

1 

B 

Operating  revenue  $100,000  to  $999,999. . 

21 

1 

9 

8 

•   • 

■   • 

1 

1 

1 

C 
Operating  revenue  $25,000  to  $99.999. . . . 

13 

•  • 

6 

3 

2 

1 

•   • 

1 

D 
Operating  revenue  less  than  $25.000 

3 

1 

2 
19 

•  ■ 

15 

1 

,    , 

3 

2 

1 

Total 

45 

3 

•   • 

1 

TABLE  52 

Relation  of  State  and  Local  Taxes  to  Net  Income,  Gas  and 
Electric  Corporations  in  New  York  State 

(Combming  gas  and  electric  service.) 

Frequency  Table  Based  upon  the  Average  Annual  Tax  Payments  and  the 
Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes  During 
the  Period  1911-19^ 

Percentage  of  net  income  paid  in  total  State  and  local  taxes 
Gas  and  Electric  Corporations  reporting  from  New  York  State 


Num- 
ber 
in 

class 

NuMBKR  Patino 

CLASS 

5% 

to 

9.9 

10% 

to 

14.9 

15% 

to 
19.9 

20% 

to 

24.9 

25% 

to 
29.9 

30% 

to 

34.9 

35% 

to 

39.9 

1 

45% 

to 

49.9 

1 

60% 

to 
64.9 

2 
2 

85% 

to 

89.9 

A 
Operating  revenue  $1,000,000  or  over. 

B 
Operating  revenue  $100,000  to  $999,999 

7 
12 

•   • 

1 

1 

1 

1 

2 

3 
5 

2 

2 

4 

2 

2 

•  •  • 

1 

Total 

19 

1 

1 

1 

1 

•^^^-» 

i 


235 

TABLE  53 

Relation  of  State  and  Local  Taxes  to  Net  Income,  Manu- 
factured Gas  Companies  in  New  York  State 

Frequency  Table  Based  upon  the  Average  Annual  Ta>x  Payments  and  the 
Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes  During 
the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  State  and  local  taxes 
Manufactured  Gas  Companies  reporting  from  New  York  State 


Num- 
ber 
in 

class 

Number  Paying 

class 

20% 

to 
29.9 

1 

3 

1 
5 

30% 

to 
39.9 

2 

1 
3 

50% 

to 
59.9 

70% 

to 

79.9 

80% 

to 
89.9 

90% 

to 
99.9 

100% 

to 
109.9 

120% 

to 
129.9 

140% 

to 
149.9 

a 

Operating  revenue  $1,000,000  or  over 

B 
Operating  revenue  $100,000  to  $999,- 
999 

2 

8 
5 

1 
1 

«   ■ 

1 

1 

1 
1 

1 
1 

1 

•   •   •  • 

1 

1 

C 

Operating  revenue  $25,000  to  $99,999 

Total 

15 

1 

1 

1 

TABLE  54 

Relation  of  Total  State  and  Local  Taxes  to  Net  Income, 
Natural  Gas  Companies  in  New  York  State 

Frequency   Table   Based   upon   the   Average   Annual    Ta^   Payments   and    the 
Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes  During 
the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  State  and  local  taxes 
Natural  Gas  Companies  reporting  from  New  York  State 


class 

Num- 
ber 
in 

class 

Nu-mber  Patino 

Less 
than 

5% 

10% 

to 
14.0 

3 
2 

5 

15% 

to 
19.9 

1 
1 
1 

3 

20% 

to 
24.9 

1 

25% 

to 

20.9 

•   • 

1 

1 

30% 

to 
34.0 

1 
1 

45% 

to 
49.9 

1 

•   • 

1 

65% 

to 
69.9 

70% 

to 
74.9 

140% 

to 
144. 

Operating 
over .... 

A 
revenue  $1,000,000  or 

2 
6 
7 
3 

1 
1 

1 
1 

•   • 

1 

Operating 
$999,999 

B 
revenue    $100,000    to 

... 

Operating 
$99,999. 

C 
revenue    $25,000    to 

^                         D 

Operating  revenue  less  than  $25.- 

•  ■  •  • 

ToUl. 

18 

2 

1 

2 

1 

2a6 


TABLE  55 

Relation  of  Total  State  and  Local  Tax  to  Net  Income,  All 
Gas  and  Electric  Companies  in  ITew  Yobk  State 

Frequency  Table  Based  upon  the  Average  Annual  Ta^  Payments  and  the 
Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes  Du/ring 
the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  State  and  local  taxes 
All  Oa>a  and  Electric  Companies  reporting  from  New  York  State 


NxmBm  Patwo 

Num- 
ber 

• 

CLASS 

1        1 

1 

in 
elaos 

Less 

10% 

20%  30% 

40%  50% 

60% 

70% 

80% 

90% 

100% 

120% 

140% 

300% 

than 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

10% 

19.9 

29.9 

39.9 

49.9 

59.9 

89.9 

79.9 

89.9 

99.9 

109.9 

129.9 

149.9 

309.9 

A 

Operating    revenue 

11.000,000  or  over 

19 

1 

4 

9 

1 

1 

1 

1 

•  • 

•  • 

•  • 

•  •  •  • 

•  •  •  • 

1 

B 

Opentmg     revenue 

$100,000  to  $999.- 

47 

3 

14 

17 

4 

,  , 

1 

3 

2 

1 

,  . 

1 

1 

•  •  •  • 

999 

0 

Operatins     revenue 

$25,000  to  199.999. 

25 

•  •  •  • 

9 

5 

3 

1 

2 

1 

•  • 

1 

1 

•  •  ■  • 

•  •  •  • 

1 

1 

D 

Operating     revenue 

less  than  $25.000.. 

6 

•  •  "  • 

2 

1 

2 

•• 

•  • 

•• 

1 

•  • 

•  • 

•  •  •  • 

•  •  •  • 

•  •  •  • 

Total 

97 

4 

29 

32 

10 

2 

4 

5 

3 

2 

1 

1 

1 

2 

1 

c 

The  variation  within  each  group  is  pronounced.  From  less 
than  2  per  cent  the  ratio  extends  to  more  than  600  per  cent. 
When  the  ratio  is  in  excess  of  100  per  cent  it  means  that  a  com- 
pany which  showed  a  profit  before  taxes  were  paid  had  a  deficit 
after  paying  taxes. 

The  frequency  tables  above  present  the  details  of  the  situation 
within  each  group.  In  the  following  table  the  median  case  has 
been  picked  out  as  representative  of  each  class.  The  ratios  there 
given  are  to  be  considered  typical  in  that  the  burden  of  taxes  on 
an  average  company  is  shown  for  each  group.  In  determining 
these  ratios  all  companies,  whether  operating  at  a  profit  or  a  loss, 
have  been  included. 


i 


X 


- 


237 


TABLE  56 

AvEBAGE  Ratio  of  Total  State  and  Local  Taxes  to  Xbt 

Income 

Public  Service  Corporations  in  New  York  State,  1911-1920 
The  average  employed  in  each  case  is  the  median ;  thus  one-half  of  the  total 
number  of  corporations  included  in  each  of  the  given  groups  paid  more  than 
the  given  percentage  of  their  net  income  in  meeting  the  taxes  named,  while 

one-half  paid  less. 

Average    Ratio,    State 
and  Local  Taxes  to 
Net      Income      (ex- 
Number     of    Corpora-  pressed    as    a    per- 
Class  of  Utility                                   tions   Included                   centage  relation) 

Electric  Railways    56  137.6 

Telephone  and  Telegraph 67  23.61 

Gas  and  Electric: 

Electric  Light  and  Power.  50  23.33 

Gaa     and     Electric      (com- 
bined)      22  28.75 

Gas    (manufactured) 18  65.00 

Gas    (natural) 18  18.33 

Total  Gas  and  Electric 108  26.56 

The  typical  case  in  the  electric  railway  group  is  in  a  position 
distinctly  less  favorable  than  the  typical  companies  in  the  other 
groups.  The  fact  that  a  relatively  large  percentage  of  the  electric 
railways  operate  at  a  loss  accounts  for  the  high  ratio  here  shown. 

The  following  table  presents  the  situation  when  only  companies 
operating  at  a  profit  are  included. 


TABLE  57 
Average  Ratio  of  Total  State  and  Local  Taxes  to  Net 

Income 

Public  Service  Corporations  Operating  at  a  Profit,  1911-1920 
(Excluding   corporations   showing   a   deficit) 


t 

1 

Average 

Ratio, 

ToUl 

State 

and 

Local 

Class  of  Utility 

Number 

of 

Corpora- 

Taxes  to  Net  Income 

tions 

Included 

(expressed 

as      a 

percentage  relation > 

Electric   Railways    

34 

48.75 

Telephone  and  Telegraph. . . . 

63 

22.8 

Gas  and  Electric: 

Electric  Light  and  Power. 

45 

22.67 

Gas     and    Electric     (com- 

bined)     

19 

26.87 

Gas    (manufactured) 

15 

38.33 

Gas    (natural) 

18 

18.33 

Total  Gas  and  Electric 

97 

24.85 

238 


The  typical  electric  railway  in  this  group  pays  48.75  per  cent 
of  its  net  income  from  Xew  York  business  in  meeting  all  its 
State  and  local  taxes.  The  two  other  classes  of  utilities  here 
shown  are  represented  by  companies  paying  24.85  per  cent  in  the 
case  of  gas  and  electric  companies,  and  22.8  per  cent  in  the  case  of 
telephone  and  telegraph  companies. 

While  the  above  figures  show  the  condition  of  typical  companies 
they  do  not  show  the  relation  between  the  total  taxes  paid  by  dif- 
ferent classes  of  utilities  and  the  total  net  income,  from  New 
York  business,  of  each  of  the  utility  groups. 

It  is  desirable  to  establish  such  relations,  for  the  fiscal  aspects 
of  the  problem  are  most  clearly  brought  out  by  the  aggregate 
figures.     These  rates  are  shown  in  the  following  tables: 

TABLE  58 

Ratio  of  Aggregate  State  and  Local  Taxes  to  Aggregate 

!N^ET  Income 

Public  SerHce   Corporations  in  New  York  State,   1911-1920 

The  ratio  for  each  class  is  the  percentage  relation  of  aggregate  State  and 
local  taxes  to  aggregate  net  income.  The  aggregate  figures  used  are  the  sums 
of  ten-year  averages  for  each  of  the  corporations  included.* 


Number     of     Corpora 
Class  of  Utility  tions   Included 

Steam    Railroads  t     10^ 

Electric    Railways    56 

Telephone    and    Telegraph ...  66 

Gas  and  Electric: 

Electric  Light  and  power . .  60 

Gas     and     Electric      (com- 
bined)   22 

Gas   (manufactured)    18 

Gas    (natural)     18 

Total  Gas  and  Electric 108 


Ratio     of     Aggregate 
State      and       Local 
Taxes  to  Aggregate 
Net      Income      (ex- 
pressed   as    a    per- 
centage relation) 

28.2 

66.5 

> 

16.2 

23.9 

32.9 

27.7 

11.8 

24.1 

The  ratios  here  given  are  in  general  lower  than  in  the  median 
tables,  because  of  the  preponderant  influence  of  the  large  com- 
panies, which  are  on  the  whole  more  profitable.     Electric  rail- 

*  For  the  basis  of  the  steam  railroad  figures,  cf.  supra,  p.  210 
t  Returns  from   49    lessor   railroads   are   included.     When   operating    roads   only 
art  included  the  ratio  is  31.7. 


i  X 


239  ' 

ways  are  still  seen  in  a  position  of  less  advantage,  while  telephone 
and  telegraph  companies  show  the  lowest  percentage. 

The  changes  resulting  from  the  omission  of  companies  report- 
ing losses  are  not  pronounced.  The  following  table  gives  the 
ratios  based  upon  the  returns  of  the  profitable  corporations  only. 


TABLE  59 

Ratio  of  Aggregate  State  and  Local  Taxes  to  Aggregate 

Net  Income 

Public  Service  Corporations  Operating  at  a  Profit 

(Excluding  corporations  showing  a  deficit) 

.--^:v^<M,,.T^^wi, .  REtlo     of     Aggregate 

.  t:^?^  y^v>^  i-..  g^j^^g      and      Local 

^*^^  ,    '  Taxes  to  Aggregate 

tfe'^'V  -  •■■■^  jjg^.      Income      (ex- 

•  Number     of    Corpora-  pressed    as    a    per- 

Class  of  Utility  tions   Included  centage   relation) 

Steam    Railroads*     87  27.3 

Electric   Railways    34  **•*" 

Telephone  and  Telegraph  t..  ^  ^^ " 

Gas  and  Electric: 

Electric  Light  and  Power . .  45  23.7 

Gas     and     Electric      (com- 

bined)    W  III 

Gas    (manufactured)    15  ^»" 

Gas    (natural)    18  ^^^ 

Total  Gas  and  Electric ^^  ^^'^ 


Kelation  of  State  Taxes  to  :N^et  Income.—  The  preceding 
section  dealt  with  the  relation  of  total  taxes  to  net  income.  It  is 
desirable  to  present  an  additional  comparison  in  which  all  local 
taxes  are  excluded  and  only  the  taxes  paid  directly  to  the  State 
are  included.  The  following  frequency  tables  show  the  percent- 
age of  net  income  paid  in  State  taxes  by  the  corporations  included 
in  each  of  the  public  utility  groups. 


•  This  ratio  is  31.2  when  operating  roads  only  are  included. 

t  Se  re?irns  f rom  one  large  telephone  and  telegmph  co^Pjny,  wWch 
o  hniHint  pomoanv  affect  the  telephone  ratio  materially.  When  taxes 
of  this  comSX  are  omltt^,  the  ratio  of  aggregate  taxes  to  aggregate 
?or  all  other  companies,  becomes  21.8  per  cent.  Income,  as  used  in 
tWs  ratio,  IncludeS  non-operating  as  weU  as  operating  Income. 


is  primarily 
and  income 
net  Income, 
establishing 


240 


TABLE  60 

RELATIo^  OF  Total  State  Taxes  to  Net  Income,  Elbcteio 

Railways  in  New  York  State 

Frequency  Tables  Based  upon  the  Average  Annual  State  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  am,y  Deduction  for  Taxes 
During  the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  State  taxes 
Electric  Railways  reporting  from  New  York  State 


Num- 
ber 
in 

class 

Number  Patwo 

CLASS 

Less 
than 
9% 

9% 

to 

17.9 

18% 

to 

26.9 

27% 

to 

35.9 

54% 

to 
62.9 

81% 

to 

89.9 

315% 

to 

322 

A 

Operating  revenue  $1,000,000  or  over. 

B 
Operating  revenue  $100,000  to  $999,999 

c 

Operating  revenue  less  than  $100,000 . 

7 

19 

8 

6 

10 

4 

1 
5 

•  •  •  • 

•  •  •  • 

1 

•  •  •  • 

•  •  •  • 

2 

•  •  ■  • 

2 

1 

•  •  •  • 

1 

•  •  •  • 

1 

Total 

34 

20 

6 

1 

2 

3           1 

1 

Supplementaey  Table:      Detailed  Classification  of  Com- 
panies Paying  Less  than  18  Per  Cent 


■     "       clAs 
na 

Number 

in 

class 

Less 
than 
2% 

2% 

to 

3.9 

4% 

to 

5.9 

6% 

to 

7.9 

8% 

to 

8.9 

10% 

to 

11.9 

12% 

to 

13.9 

a 

7 
15 

4 

1 

•  •  •  • 

•  •  •  • 

1 
1 

2 

3 

1 
2 

"k 

1 

"4 

1 

2 
2 

■  •  •  • 

B 

C 

2 

Total 

26 

1 

6 

6 

5 

4 

2 

i 


241 


TABLE  61 

Relation  of  Total  State  Taxes  to  Net  Income,  Telephone 
AND  Telegraph  Coeporations  in  New  York  State 

Frequency  Table  Based  upon  the  Average  Annual  State  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes 
During  the  Period  1011-1920 

Percentage  of  net  income  paid  in  total  State  taxes 

Telephone  a/nd  Telegraph  Corporations  reporting  from  New  York  State 


Num- 
ber 
in 

class 

Number  Patino 

CLASS 

Less 
than 

1% 

1% 

to 

1.9 

•   ■ 

2% 

to 

2.9 

•   • 

3% 

to 

3.9 

1 

4% 

to 

4.9 

5% 

to 

5.9 

6% 

to 

6.9 

•  • 

7% 

to 

7.9 

•  • 

8% 

to 

8.9 

9% 

to 

9.9 

11% 

to 

11.9 

•  • 

15% 

to 

15.9 

16% 

to 

16.9 

A 

Operating  revenue 
$1,000,000  or  over. 
B 

Operating  revenue 
$100,000  to  $999,- 
999 

2 

•   •   •   • 

1 

•   • 

•  • 

•  • 

•  • 

•  •  • 

7 

1 

1 

2 

2 

1 

C 

Operating  revenue 
$25,000  to  $99,999 
D 

Operating  revenue 
$10,000  to  $24,999 

e 

Operating      revenue 
less  than  $10,000. . 

10 

1 

•   • 

3 

3 

2 

•  • 

•  • 

•  • 

1 

•  • 

•  • 

•  • 

•  • 

•  •  • 

•  •  • 

27 

1 

1 

3 

8 

7 

2 

1 

1 

2 

•  • 

•  • 

1 

16 

1 

•   • 

2 

4 
11 

2 
16 

2 

2 

1 
2 

2 
3 

3 

1 

1 

• . . 

Total 

62 

3 

12 

6 

1 

1 

1 

« 

1          t 

>.t-Ma 


II 


242 


TABLE  62 

Relation  of  Total  State  Taxes  to  Net  Income,  Electric 
Light  and  Power  Corpobations  in  New  York  State 

Frequency  Table  Based  upon  the  Average  Annual  State  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes 
During  the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  State  taxes 

Electric  Light  and  Power  Corporations  reporting  from  New  York  State 


Num- 
ber 
in 

class 

8 
21 
13 

3 

NCTMBEB  PaTINO 

CLASS 

Less 
than 

1% 

1 

•  •   *   • 

•  •  •  • 

•  •  •  • 

1% 

to 

1.9 

2 
5 

1 
2 

2% 

to 

2.9 

3% 

to 

3.9 

4% 

to 

4.9 

5% 

to 

5.9 

6% 

to 

6.9 

7% 

to 

7.9 

2 

•  • 
■   • 

2 

38% 

to 
38.9 

A 

Operating  revenue  »1, 000.000  or  over. . . . 

B 

Oparating  revenue  $100,000  to  1999.999. 

C 
Operating  revenue  $25,000  to  $99,999. . . . 

D 

Operating  revenue  less  than  $25,000 

3 

6 

2 

1 
12 

•  • 

3 
3 

•  • 

6 

2 

4 
3 

•  • 

~9 

•  • 

•  • 

3 

•  • 

~3" 

•  « 

1 

•  • 
■   • 

1 

•  •  • 

•  •  • 

1 

•  •  • 

Totftl 

45 

1 

10 

1 

243 


TABLE  G3 

Relation  of  Total  State  Taxes  to  Xet  Income,  Gas  and 

Electric  Corporations  in  New  York  State 

(Combining  gas  and  electric  service.) 

Frequency  Table  Based  upon  the  Average  Annual  State  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Tawes 
During  the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  State  and  local  taxes 

Gas  and  Electric  Corporations  reporting  from,  New  York  State 


class 


A 

Operating  revenue  $1,000,000 
or  over 

B 

Operating    revenue   $100,000 
to  $999.999 

Total 


Number  Patino 

« uiiiLmr 

in 
class 

2% 

to 

2.9 

3% 

to 

3.9 

4% 

to 

4.9 

5% 

to 

5.9 

7% 

to 

7.9 

9% 

to 

9.9 

7 

12 

3 

1 

2 

7 

2 

1 

2 

1 

19 

4 

9 

3 

2 

1 

TABLE  64 

Relation  of  Total  State  Taxes  to  Net  Income,  Manufac- 
tured Gas  Companies  in  J^ew  York  State 

Frequency  Table  Based  upon  the  Average  Annual  State  Ta^x  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxea 
During  the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  State  taxes 

Manufactured  Gas  Corporations  reporting  from  New  York  State 


Num- 
ber 
in 
class 

NuMBBR  Patino 

CLASS 

1% 

to 

1.9 

1 
1 

2% 

to 

2.9 

1 
1 

3% 

to 

3.9 

4% 

to 

4.9 

5% 

to 

5.9 

6% 

to 

6.9 

8% 

to 

8.9 

9% 

to 

9.9 

13% 

to 
13.0 

14% 

to 

U.O 

A 
Operating  revenue  $1,000,000  or  over. 

B 
Operating  revenue  $100,000  to  $999.- 
999       

2 

8 

5 
15 

1 
1 

2 

•  • 

2 

2 
4 

1 

1 
2 

•  • 

1 

1 

1 

1 

1 

1 

■ 
1 

•  •  • 

1 

C 
Operating  revenue  $25,000  to  $99,999. 

Total 

1 

! 

244 


TABLE  65 

Relation  of  Total  State  Taxes  to  'Net  Income,  Natural 
Gas  Companies  in  New  York  State 

Frequency  Table  Based  upon  the  Average  An>nual  State  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes 
During  the  Period  I9I1-1920 

Percentage  of  net  income  paid  in  total  State  taxes 

Natural  Oas  Companies  reporting  from  New  York  State 


Num- 
ber 
in 

class 

NUMBSB  PaTIMO 

CLASS 

Less 
than 
0.5% 

.5% 
to 
.9 

1 

•   • 

1% 
to 
1.4 

1.5% 
to 
1.9 

2% 

to 

2.4 

2.5% 

to 

2.9 

3% 

to 

3.4 

4% 

to 

4.4 

5.5% 

to 

6.9 

7% 

to 

7.4 

•  • 

•  • 

1 

•  • 

8% 

to 

8.4 

1 

•  • 

8.5% 

to 

8.9 

A 

Operating  revenue  $1  ,- 
000,000  or  over. . . . 

B 
Operating       revenue 
$100,000  to  $999,999 

C 

Operating       revenue 
$25,000  to  $99,999 

D 

Operating       revenue 
less  than  $25,000.  . 

2 
6 
7 
3 

1 

•  •  ■  • 

•  •  ■  • 

.... 

•  • 

2 

•  ■ 

I 

■   •    • 

2 
1 

•  • 

1 
1 

•  • 

1 

•  •  « 

•  •  • 

•  • 

•  • 

1 

•  • 

1 

1 

•  • 

•  •  • 

•  ■  • 

•  •  ■ 

2 

■  •  •  • 
•  •  •  • 

1 

»  •  •  • 

Total 

18 

1 

1 

3 

3 

2 

1 

1 

2 

1 

1 

\ 


^6 


TABLE  66 

Relation  of  Total  State  Taxes  to  Net  Income.  All  Gas 
AND  Electric  Companies  in  New  York  State 

Frequency  Table  Based  upon  the  Average  Annual  State  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes 
During  the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  State  taxes 

All  Gas  and  Electric  Companies  reporting  from  New  York  State 


Num- 
ber 
in 

CUUM 

Nman  Patino 

CLASS 

LCH 

than 
1% 

1% 

to 

1.9 

2% 
to 
2.9 

3% 
to 
3.9 

4% 

to 

4.9 

5% 
to 
5.9 

6% 

to 

6.9 

7% 
to 
7.9 

8% 

to 

8.9 

9% 

to 

9.9 

13% 

to 

13.9 

14% 

to 

14.9 

38% 

to 

38.9 

A 
Operating   revenue  $1,000,000  or 

AVflT         •••••«• 

19 

47 

25 

6 

2 

1 

•  •  •  • 

•  •  •  • 

2 

9 
3 
8 

7 

9 
3 

1 

3 

11 

4 

•  • 

4 
7 

e 

• » 

•  • 

1 
2 

•  • 

2 

•  • 

•  • 

4 
1 

•  • 

•  • 

1 
2 

•  • 

1 
1 

•  ■ 

1 

•  • 

•  • 
■  • 

1 

•  • 

•  • 

B 
Operating   revenue    $100,000    to 
S999.999 

C 

Operating  nrenue  $25,000  to  999.- 
999 

D 
Operating  revenue  less  than  $25,000 

1 

•  •  • 

Total   

97 

3 

17 

20 

18 

17 

7 

2 

6 

3 

2 

1 

I 

] 

The  varying  burden  of  these  State  taxes  is  revealed  by  the 
frequency  tables.  It  is  clear  that  these  taxes,  levied  upon  gross 
earnings,  capital  stock,  or  excess  dividends,  fall  with  very  unequal 
weight  upon  different  corporations  when  expressed  in  terms  of 
net  income. 

The  comparison  of  the  tax  burden  on  the  different  groups  .i§ 
facilitated  by  the  selection  of  typical  cases  for  each  class.  The 
results  are  given  below,  the  ratio  of  State  taxes  to  net  income 
for  the  median  case  being  shown  for  each  group. 


a 


246 


«  • 


347 


¥.   « 


TABLE  67 
Average  Ratio  of  Total  State  Taxes  to  Xet  Income 

Public  Service  Corporations  in  New  York  State^   1911-1920 

The  average  employed  in  each  case  is  the  median;  thus  one-half  of  the 
total  number  of  corporations  included  in  each  of  the  given  groups  paid 
more  than  the  given  percentage  of  their  net  income  in  meeting  the  taxes 
named,  while  one-half  paid  less. 


Class  of  utility 

Electric  Railways    

Telephone  and  Telegraph  .... 
Gas  and  Electric: 

Electric  Light  and  Power . . 
Gas      and    Electric     (com- 
bined )     

Gas   (manufactured)    .., 
Gas  (natural)   

Total  Gas  and  Electric 


For  two  of  the  main  groups  the  ratios  are  not  far  apart.  The 
typical  telephone  company  (i.  e.  the  median  company)  pays  3.94 
per  cent  of  its  net  income  in  meeting  State  taxes,  and  the  typical 
gas  and  electric  company  3.78  per  cent.  Electric  railways  show 
an  average  very  much  greater,  the  typical  ratio  being  33  per 
cent. 

When  profitable  companies  alone  are  included,  and  the  median 
ratios  selected,  the  following  values  are  secured. 


s  ►^ 


Number 
tions 

of     Corpora- 
Included 

Average   Ratio,    Total 
State  Taxes  to  Net 
Income      (expressed 
HH  a  perceucuge  re- 
latioiu 

56 

31.50 

M 

3.94 

50 

3.33 

22 

3.78 

IS 

5.50 

18 

2.25 

108 

3.78 

4      I 


TABLE  68 
Average  Ratio  of  Total  State  Taxes  to  Net  Income 

Public  Service  Corporations  Operating  at  a  Profit,  1911-1920 
(Excluding  corporations  showing  a  deficit) 


Class  of  Utility 

Electric   Railways    

Telephone  and  Telegraph . . . . 
Gas  and  Electric: 

Electric  Light  and  Power . . 
Gras     and     Electric     (com 

bined )    , 

Gas  (manufactured)    ... 
Gas  (natural )   , 

Total  Gas  and  Electric 


Number 
tions 

of    Corpora- 
Included 

Average    Ratio,    Total 
State  Taxes  to  Net 
Income      (expressed 
as  a  percentage  re- 
lation) 

62 

8.40 
3.87 

45 

2.96 

19 
16 

18 

3.56 
4.75 
2.25 

97 


3.47 


The  electric  railway  ratio  is  materially  smaller,  being  only 
8.4  per  cent,  while  the  figures  for  the  other  groups  are  somewhat 
lower. 

In  the  two  preceding  tables  the  different  groups  have  been 
represented  by  typical  cases,  equal  weight  being  given  to  large 
and  small  companies  in  the  selection  of  the  median  cases.  The 
following  table  shows  the  relations  between  aggregate  State  taxes 
and  aggregate  net  income  from  New  York  business  for  each  of 
the  utility  groups. 

Note  :    The    term    "  State    taxes "    as    here    used    includes    capital    stock    taxes, 
taxes  on  gross  earnings,  and  taxes  on  excess  dividends. 


348 


TABLE  69 
Ratio  of  Aggeegate  State  Taxes  to  Aggregate  Net  Income 

Public  Service   Corporations  in  Neto   York   State,   1911-1920 
The  ratio  for  each  class  is  the  percentage  relation  of  aggregate  State  taxes 
to  aggregate  net  income.    The  aggregate  figures  used  are  the  sums  of  ten-year 
averages  for  each  of  the  corporations  included. 

Ratio     of     Aggregate 
State  Taxes  to  Ag- 
gregate Net  Income 
Number     of    Corpora-  (expressed  as  a  per- 

Class  of  Utility  tions   Included  centage  relation) 

Steam  Railroads*    109  2.74 

Electric  Railways    56  8.28 

Telephone  and  Telegraph..  66  4.10 
Gas  and  Electric: 
Electric  Light  and  Power . .                50                                   2.8 
Gas     and     Electric     (com- 
bined)                     22                                    3.9 

Gas  (manufactured)    18  4.2 

Gas  (natural)    18  1.5 

Total  Gas  and  Electric 108  2.90 

Steam  railroads,  it  is  seen,  pay  2.74  per  cent  of  their  net 
income  from  New  York  business  in  meeting  State  taxes,  while 
electric  railways  pay  8.28  per  cent.  The  ratios  for  the  other 
classes  lie  between  these  limits. 

When  ratios  are  determined  for  the  companies  operating  at  a 
profit  the  following  results  are  secured. 

TABLE  70 
Ratio  of  Aggregate  State  Taxes  to  Aggregate  !N'et  Income 

Public  Service  Corporations  Operating  at  a  Profit,  1911-1920 

(Excluding  corporations  showing  a  deficit) 

The  ratio  for  each  class  is  the  percentage  relation  of  aggregate  State  taxes 
to  aggregate  net  income.  The  aggregate  figures  used  are  the  sums  of  ten-year 
Average  for  each  of  the  corporations  included  f 

Ratio     of      Aggregate 
State  Taxes  to  Ag- 
gregate Net  Income 
Number     of    Corpora-  (expressed  as  a  per- 

Class  of  Utility  tions   Included  centage  relation) 

i^team  Railroads^ 87  2. 65 

Electric    Eailways 34  6 .  35 

Telephone  and  Telegraph§ .. .  62  4.10 

Gas  and  Electric: 

Electric  Light  and  Power . .  45  2.7 

Gas     and     Electric     (com- 
bined)      1»  3.5 

Gas   (manufactured)    15  4.1 

Gas  (natural )   18  1.5 

total  Gas  and  Electric 97  2.80 


*  For  operating  roads  only  the  ratio  is  3.08. 
fFor  the  basis  of  the  steam  railroad  figures,  cf.  supra,  p.  201. 
t  For  operating  roads  only  the  ratio  is  3.04. 

I  This  ratio  becomes  3.2  per  cent  when  returns  from  one  large  company,  primarily 
A  holding  company,  are  excluded. 


>^ 


^49 


Relation  of  Local  Taxes  to  Net  Income. —  Taxes  paid  to 
localities  on  real  and  personal  property  and  on  special  franchises 
constitute  the  chief  tax  payments  made  by  public  service  cor- 
porations, in  so  far  as  ^ew  York  taxes  are  concerned.  Though 
property  taxes  are  not  in  general  so  burdensome  as  income  or 
capital  stock  taxes,  it  is  desirable  to  determine  the  relative  im- 
portance of  these  local  taxes.  The  following  frequency  tables 
show  the  percentage  of  net  income  paid  in  local  taxes  by  the 
various  types  of  public  service  corporations,  and  indicate  the  ex- 
tent to  which  the  burden  of  these  taxes  varies  within  each  of  the 
groups. 

TABLE  71 

Relation  of  Total  Local  Taxes  to  Net  Income,  Electkic 

Railways  in  New  York  State 

Frequency  Table  Based  upon  the  Average  Annual  Local  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes 
During  the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  local  taxes 

Electric  Railways  reporting  from,  New  York  State 


I— 

Num 

ber 

in 

class 

Number  Paying 

CLASS 

Less 
than 

26% 

25% 

to 
49.9 

3 

11 

2 
16 

50% 

to 
74.9 

2 

1 

3 

75% 

to 
99.9 

■   • 

1 
1 

100% 

to 
124.9 

150% 

to 
174.9 

175% 

to 
199.9 

200% 

to 
224.9 

325% 

to 
349. S 

A 
Operating    revenue    $1,000,000    or 
over 

7 
19 

8 

2 
2 
3 

1 
1 

1 

1 

2 

B 
Operating     revenue     $100,000    to 
$999,999 

1 

C 
Operating  revenue  less  than  $100.  • 
000 

Total 

34 

7 

2 

1 

1 

2 

r 

Supplementary  Table:      Detailed  Classification  of  Com- 
panies Paying  feom  25  to  50  Per  Cent 


CLASS 

Number 

in 

class 

25% 

to 
29.9 

30% 

to 
34.9 

35% 

to 
39.9 

40% 

to 
44.9 

45% 

to 
49.9 

A 

3 

11 

2 

1 
4 

2 

4 

•  ••■•• 

2 

B 

2 

1 

C 

Total  .... 

16 

6 

1 

2 

2 

260 


251 


TABLE  72 

Relation  of  Total  Local  Taxes  to  Net  Income,  Telephone 
AND  Telegraph  Corporations  in  New  York  State 

Freqieencjf  Table  Based  upon  the  Average  Annual  Local  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes 
During  the  Period  1911-1020 

Percentage  of  net  income  paid  in  total  local  taxes 

Telephone  and  Telegraph  Corporations  reporting  from  New  York  State 


Num- 
ber 

in 

Number  Patino 

CLASS 

Less 

5% 

10% 

15% 

20% 

25% 

30% 

35% 

40% 

45% 

55% 

65% 

115% 

clftSS 

than 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

to 

5% 

9.9 

14.9 

19.9 

24.9 

29.9 

34.9 

39.9 

44.9 

49.9 

59.9 

69.9 

119.9 

A 

Operating  revenue 

91.000,000       or 

over 

2 

1 

•  • 

1 

■   • 

B 

Operating  revenue 

$100,000           to 

$999,999 

C 

7 

•  •   ■    ■ 

1 

1 

3 

,    , 

1 

1 

Operating  revenue 

$25,000  to  $99.- 

999 

10 

•  •   •    • 

•   ■ 

4 

2 

1 

1 

■   • 

•    • 

1 

1 

D 

Operating  revenue 

$10,000  to  $24.- 

999 

27 

•   •    •   • 

3 

6 

9 

2 

1 

•   • 

2 

2 

1 

1 

•   • 

e 

Operating  revenue 

less  than  $10.00G 

16 

2 

4 

3 

3 

1 

3 

1 
3 

1 
3 

2 

•   • 

Total 

62 

3 

13 

16 

6 

3 

1 

5 

3 

1 

1 

S    IvT 


TABLE  73 

Relation  of  Total  Local  Taxes  to  Net  Income,  Electric 
Light  and  Power  Corporations  in  New  York  State 

Frequency  Table  Based  upon  the  Average  Annu/il  Local  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes 
During  the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  local  taxes 
Electric  Light  and  Power  Corporations  reporting  from  New  York  State 


Num- 
ber 
in 

class 

NuiTBKB  Patino 

class 

Less 
than 
10% 

10% 

to 

19.9 

20% 

to 

29.9 

30% 

to 
39.9 

1 
1 

40% 

to 
49.9 

50%  60% 

to  J   to 
59.9  69.9 

260% 

to, 

269.9 

A 

Operating  revenue  $1,000,000  or  over 

B 
Operating  revenue  $100,000  to  $999.999 

C 
Operating  revenue  $25,000  to  $99,999 

D 

Operating  revenue  less  than  $25,000 

8 
21 
13 

3 

1 
1 

2 
13 

7 

1 
23 

4 

4 
4 

12 

1 

1 
2 

2 

•   • 

1 
1 

•   • 

1 

Total 

45 

2 

2 

2 

1 

TABLE  74 

Relation  of  Total  Local  Taxes  to  Net  Income,  Gas  and 

Electric  Corporations  in  New  York  State 

(Cambining  gas  and  electric  service.) 

Frequency  Tabh  Based  upon  the  Average  Annual  Local  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes 
During  the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  local  taxes 

Gas  and  Electric  Corporations  reporting  from  New  York  State 


Number  Paying 

class 

Num- 
ber 
in 

class 

10% 

to 

14.9 

15% 

to 
19.9 

2 

20% 

to 
24.9 

1 

25% 

to 
29.9 

2 

30% 

to 

34.9 

1 

40% 

to 
44.9 

50% 

to 
54.9 

55% 

to 
59.9 

74% 

to 
79.9 

Operating 

A 

revenue  $1,000,000  or  over 

7 

1 

•  •  • 

Operating 

B 

revenue  $100,000  to  $999.999. . . 

12 

2 
2 

3 

1 

1 
3 

2 
3 

1 

1 

1 

1 

Total. 

19 

5 

2 

1 

1 

1 

■tt;,::.-,  -  ■■ 

262 


258 


TABLE  76 

liELATlON    OF    TOTAL  LoCAX   TaXES   TO   Net   InCOME,   MaNUFAC- 

TUEED  Gas  Companies  in  New  York  State 

Frequency  Table  Based  upon  the  Average  Annual  Local  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes 
During  the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  local  taxes 

Manufactured  Gas  Companies  reporting  from  New  York  State 


Num- 
ber 
in 

class 

NUMBBR  PaTINO 

CLASS 

10% 

to 

19.9 

20% 

to 

29.9 

•  • 

3 

•  • 

3 

30% 

to 

39.9 

40% 

to 
49.9 

60% 

to 
69.9 

80% 

to 
89.9 

90% 

to 
99.9 

100% 

to 
109.9 

130% 

to 
139.9 

A 
Operating  revenue  Sl.000.000  or  over. 

B 
Operating  revenue  $100,000  to  S099,999 

C 

Operating  revenue  $25,000  to  $99.999 . 

2 
8 
5 

1 
2 

1 

•   ■ 

1 
1 

•    « 

1 
1 

a    • 

1 

•    • 

1 

•  • 

•  • 

2 
2 

•  • 

1 

•  • 

•  •   •   • 

1 

•  •   •   • 

1 

Total 

15 

4 

1 

1 

1 

TABLE  76 

Relation  of  Total  Local  Taxes  to  Net  Income,  Natural 
Gas  Companies  in  New  York  State 

Frequency  Table  Based  upon  the  Average  Annual  Local  Tax  Payments  and 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes 
During  the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  local  taxes 

Natural  Ga^  Companies  reporting  from  New  York  State 


Num- 
ber 
in 

class 

NUMBBR  PaTINO 

CLASS 

Less 
than 

5% 

5% 

to 

0.0 

10% 

to 

14.0 

15% 

to 

10.0 

20% 

to 

24.0 

25% 

to 

20.0 

45% 

to 

40.0 

55% 

to 

50.0 

•  • 

1 

65% 

to 

60.0 

105% 

to 
100.9 

A 

Operating  revenue  $1,000,000 
over 

or 

2 
6 

7 
3 

1 

1 

•  •  •   • 

•  ■    •   • 

1 
2 

2 
1 

•    • 

3 

1 
1 

•  • 

2 

1 
1 

•  • 

2 

•  • 
■  • 

2 
2 

•  • 

•  • 

1 

•  • 

1 

•  • 

•  • 

•  ■ 

1 

B 
Operating    revenue    $100,000 
$999.999 

to 

C 
Operating    revenue    $25,000 
$99,990 

to 

1 

D 

Operating  revenue  less  than  $25,- 

000 

Total 

18 

2 

3 

1 

1 

1 

1 

*    ■• 


TABLE  77 

Relation  of  Total  Local  Taxes  to  Net  Tncome,  All  Gas 
AND  Electric  Companies  in  New  Yokk  State 

Frequency  Table  Based  upon  the  Average  Annual  Local  Tax  Payments  vnd 
the  Average  Annual  Net  Income  Previous  to  any  Deduction  for  Taxes 
During  the  Period  1911-1920 

Percentage  of  net  income  paid  in  total  local  taxes 

All  Gas  and  Electric  Companies  reporting  from  New  York  State 


CLASS 


Num- 
ber 
in 
class 


Opwating  reveirae  $1,000,- 
000  or  over 


B 

Operating  revenue  $100,000 
to  $099.909 


Operating  revenue   $25,000 
to  $99,999 


D 
Operating  revenue  leas  than 
$25,000 


Total 


19 


47 


25 


NuMBEB  Fating 


Less 
than 
10% 


10% 

to 

19.9 


20% 

to 

29.9 


30% 

to 

39.9 


97 


23 


39 


10 


24 


40% 

to 

49.9 


80% 

to 

69.9 


f 


60% 

to 

69.9 


70% 

to 

79.9 


80% 

to 

89.9 


90% 

to 

39  9 


100% 

to 
109.9 


130% 

to 

139.9 


to  •• 
360  9 


The  wide  variations  shown  in  these  tables  make  difficult  a 
comparison  of  the  average  burden  in  each  of  the  different  groups. 
This  comparison  is  permitted  by  the  following  table,  in  which 
the  median  case  has  been  selected  as  representative  of  each  group. 


254 


255 


N 


TABLE  78 
Average  Ratio  of  Total  Local  Taxes  to  Net  Income 

Public  Service  Corporations  in  Hew  York  State,  1911-1920 

The  average  emiployed  in  each  case  is  the  median;  thus  one-half  of  the 
total  number  of  corporations  included  in  each  of  the  given  groups  paid 
more  than  a  given  percentage  of  their  net  income  in  meeting  the  taxes 
named,  while  one-half  paid  less. 


Class  of  Utility 

Electric  Railways 

Telephone  and  Telegraph . . . 
Gas  and  Electric: 
Electric  Light  and  Power. 
Gas    and    Electric     (com 

bined )     

Gas   ( manufactured )    .... 
Gas   ( natural )    

Total  Gas  and  Electric 


When  a  company  representative  of  the  profitable  concerns  in 
each  group  is  selected,  the  following  ratios  are  secured: 


Number 
tions 

of     Corpora- 
Included 

Average    Ratio,    Total 
Local  Taxes  to  Net 
Income      (expressed 
as  a  percentage  re- 
lation) 

56 

112.50 

66 

18.44 

50 

20. 

22 

28.33 

18 

55. 

18 

17.5 

108 

23.30 

TABLE  79 
Average  Ratio  of  Total  Local  Taxes  to  Net  Income 

Public  Service  Corporations  Operating  at  a  Profit,  1911-1920 
(Excluding  corporations  showing  a  deficit) 


Class  of  Utility 

Electric  Railways 

Telephone  and  Telegraph .  . . . 
Gas  and  Electric: 
Electric  Light  and  Power . . 
Gas     and     Electric     (com- 
bined )     

Gas   (manufactured)    

Gas   ( natural )    

Total  Gas  and  Electric 


Number 
tions 

of     Corpora- 
Included 

Average    Ratio,    Total 
Local  Taxes  to  Net 
Income      <  expressed 
as  a  percentage  re- 

34 

34.16 

62 

18.33 

45 

18.91 

19 

25.8 

15 

35.0 

18 

17.5 

97 

21.00 

*       ■&' 


r 


m  * 


■       ^ 


Marked  variations  are  found  in  each  table,  the  diiferences  being 
greater  in  the  first  case,  where  the  ratios  are  based  upon  all 
companies. 

In  determining  the  weight  of  local  taxes  it  is  desirable  to  sup- 
plement the  above  figures  bj  ratios  based  on  aggregate  taxes  and 
aggregate  net  income.  These  ratios  are  shown  in  the  following 
table : 


TABLE  80 

Ratio  of  Aggregate  Local  Taxes  (Special  Franchise  and 
General  Property)  to  Aggregate  Net  Income 

Public  Service  Corporations  in  New  York  State,  1911-1920 

The  ratio  for  each  class  is  the  percentage  relation  of  aggregate  local  taxes 
(special  franchise  and  general  property)  to  aggregate  net  income.  The  aggre- 
gate figures  used  are  the  sums  of  ten-year  averages  for  each  of  the  corporations 
included.* 


Number     of    Corpora- 
Class  of  Utility  tions   Included 

Steam  Railroadsf 109 

Electric  Railways 56 

Telephone  and  Telegraph 66 

Gas  and  Electric: 
Electric  Light  and  Power . .  50 
Gas     and     Electric     (com- 
bined)      22 

Gas     (manufactured) 18 

Gas    (natural) 18 

Total  Gas  and  Electric 108 


Ratio      of 

Aggregate 

Local  Taxes  (special 

franchise    and    gen- 

eral    property)      to 

Net      Income      (ex- 

pressed 

as    a    per- 

centage 

relation) 

25.5 

48.22 

12.10 

21.1 

28.9 

23.5 

10.3 

21.30 

Excluding  corporations  operating  at  a  loss  during  the  period 
1911-1920  the  following  ratios  are  secured: 


•  For  the  basis  of  the  steam  railroad  figures,  cf.  supra,  p.  201. 
t  This  ratio  is  28.6  when  operating  roads  only  are  included. 


S5e 


257 


V. 


fe 


TABLE  81 

Ratio  of  Aggregate  Local  Taxes  (Special  Franchise  and 
General  Property)  to  Aggregate  Net  Income 

Public  Service  Corporations  Operating  at  a  Profit,  1911-1920 
(Excluding  corporations  showing  a  deficit) 

Ratio  of  Aggregate 
Local  Taxes  (special 
franchise  and  gen- 
eral property)  to 
Net  Income  (ex- 
pressed as  a  per- 
centage  relation) 

24.6 


Class  of  Utility 

Steam  Railroads*   

Electric  Railways  

Telephone  and  Telegraphf . . . 
Gas  and  Electric: 

Electric  Light  and  Power. . 

Gras     and    Electric     (com- 
bined)      

Gas    (manufactured) 

Gas  (natural)    

Total  Gas  and  Electric 


Number    of    Corpora- 
tions  Included 

87 

94 

02 


38.05 
12.10 


45 

19 
15 
18 


21.0 

24.6 
22.9 
10.3 


97 


20.50 


All  the  figures  whicli  have  been  presented  in  this  section  indi- 
cate that  present  State  and  local  taxes  are  levied  upon  bases  which 
cause  them  to  fall  with  very  unequal  weight  upon  the  different 
utility  groups  and  upon  the  individual  corporations  within  any 
given  class.  This  is  true  not  only  of  the  property  taxes,  discussed 
in  the  last  section,  but  of  the  gross  earnings,  excess  dividends, 
and  capital  stock  taxes  which  are  paid  to  the  State.  As  between 
the  different  utility  groups,  and  within  any  given  utility  group, 
the  burden  of  present  taxes  is  markedly  unequal. 

Comparison  between  public  utilities  and  business  cor- 
porations.—  In  studying  the  burden  of  taxes  on  different 
classes  of  corporations,  business  corporations  have  been  used 
as  a  standard,  because  of  the  fact  that  the  chief  tax  on  these 
institutions  is  now  levied  on  a  straight  net  income  basis.  In 
undertaking  to  compare  the  public  utilities  with  business  corpora- 
tions  it   is   necessary   to    determine   what   taxes   paid   by    the 

•  Thin  Tfttlo  is  28  2  when  operating  roads  only  are  included, 
t  SS  »tio  b«JwSe8  18.6  oe?cent  when  retnrnii  from  one  large  company,  primarily 
ft  holding  company,  are  txaoAtA, 


,%,^ 


former  group  are  comparable  with  the  net  income  tax  paid  by  the 
latter  class.  In  the  pages  immediately  following  the  comparison 
is  made  on  three  different  bases.* 

In  the  first  table  taxes  paid  by  public  utilities  directly  to  the 
State  (on  gross  earnings,  excess  dividends  and  capital  stock)  are 
compared  with  the  4%  per  cent  tax  on  the  net  income  of  business 
corporations.  In  the  second  comparison  the  tax  paid  on  in- 
tangible elements  in  special  franchise  values  is  added  to  the  State 
taxes  of  public  service  corporations.  This  seems  to  be  a  more 
legitimate  comparison  than  the  former,  since  the  tax  on  intangible 
elements  in  special  franchise  values  is  not,  in  the  economic  sense, 
a  direct  tax  on  property.  In  the  final  comparison  personal  prop- 
erty taxes  paid  by  public  service  corporations  are  combined  with 
the  two  types  mentioned  above,  and  the  burden  of  all  these  taxes 
is  compared  with  the  burden  of  the  net  income  tax  on  busines:. 
corporations.  Since  the  latter  tax  replaces  all  taxes  but  those 
on  real  property,  it  seems  just  to  set  against  it  all  taxes  paid  by 
public  utilities  which  are  not  based  on  real  property  (speaking 
again  from  the  economic  and  not  the  legal  point  of  view),  on 
or  off  the  streets. 

The  material  necessary  for  comparing  the  burden  of  the  State 
taxes  paid  by  public  utilities  with  the  burden  of  the  net  income 
tax  paid  by  business  corporations  has  already  been  presented. 
It  is  summarized  in  the  following  table.  Only  those  corpora- 
tions operating  at  a  profit  have  been  included. 


•  An  accurate  comparison  of  tlie  burden  of  total  taxes  on  business  corporations 
with  the  burden  of  total  taxes  on  public  utilities  is  not  possible,  because  of  differ- 
ences in  the  definition  of  real  and  personal  property  for  these  two  classes  of 
corporations. 

\  9 


258 


TABLE  82* 
Percentage  of  Net  Income  Paid  in  State  Taxes 

Business  Corporations  and  PuhUc  Service  Corporations  in  New  York  State 

ThB  business  corporation  tax  on  which  this  table  is  based  is  that  levied 
under  Art.  Q'-a  of  the  Tax  Law.  The  public  utility  taxes  included  are  those 
on  gross  earnings,  excess  dividends  and  capital  stock. 

The  ratio  for  each  class  of  public  utility  is  the  percentage  relation  of 
aggregate  State  taxes  to  aggregate  net  income.  The  aggregate  figures  used 
are  the  sums  of  ten-year  averages  (1911-1920)  for  each  of  the  corporations 
included.f  The  base  in  each  case  is  net  income  before  any  taxes  have  been 
deducted. 

Ratio  of  State  taxes 
Class  of  Corporation.  to  net  income 

Business  corporations  (mercantile  and  manufacturing)  4.30 

Steam  Railroads «  or 

Electric  Railways   ^ri 

Telephone  and  Telegraph *•  ^" 

Gas  and  Electric: 

Electric  Light  and  Power 2.7 

Gas  and  Electric  ( combined) 3.5 

Gas   (manufactured)    ^ •  * 

Gas   (natural)    ^ 

Total  Gas  and  Electric ^'^^ 

The  figures  presented  indicate  that,  with  the  exception  of  elec- 
tric railways,  the  public  utilities  pay  a  smaller  percentage  of  their 
net  income  in  State  taxes  than  business  corporations  pay  in  meet- 
ing the  net  income  tax.  The  latter  figure  appears  as  but  4.3 
per  cent  of  net  income  because  the  net  income  used  as  a  base  is 
net  income  before  any  taxes,  property  or  otherwise,  have  been 
deducted.  In  comparison  with  this  figure  steam  railroads  pay 
but  2.65  per  cent,  gas  and  electric  companies  2.8  per  cent,  tele- 
phone and  telegraph  companies  4.1  per  cent,  and  electric  railways 
6.35  per  cent  of  their  net  income.:|: 

*  ThP  following  ratios  have  been  worljed  out  independently  for  the  years 
1  ft!  ^-15-17-18  They  are  based  upon  the  average  State  taxes  paid  in  those  years, 
and  the  average  net  income  earned  from  New  York  business  by  the  different  classes 
of  public  service  corporatione : 

Ratio  of  State  Taxes 

Class  of  Utility  *»  ^^t  income 

Steam   railroads    2.20  percent 

Electric   railways |||  PfJ  J^^J 

Telephone   and    telegraph 2  28  SIJ  ceSt 

Gas  and  electric ^-^^  P®'^  ^^^^ 

These  fieures  which  are  based  upon  returns  from  aU  the  public  utilities  in  the 
State  lerl?  as  a  check  upon  the  results  secured  from  the  sample  group  studied. 
It  should  be  pointed  out  that  these  ratios  are  not  in  all  respects  comparable  to 
those  given  above  in  Table  82, 

t  For  the  basis  of  the  steam  railroad  figures    cf.  »}*pra,v.  201.  „ 

t Attention  should  again  be  drawn  to  the  fact  that  the  "net  ^^^ome  jivon 
which  these  ratios  are  based  Is  not  exactly  the  same  for  business  corporations  and 
?or  public  lervice  corporations.  The  differences  are  not  great  enough  seriously  to 
affect  the  ratios  presented.     Cf.  p.  179,  mpra- 


( 


\f 


259 

A  fairer  comparison  is  secured  if  the  taxes  paid  by  public 
utilities  on  the  intangible  elements  in  their  special  franchise 
values  are  included  with  State  taxes.  The  following  table  shows 
the  percentage  of  net  income  paid  by  public  utilities  in  meeting 
these  combined  taxes,  in  comparison  with  the  franchise  tax  paid 
by  business  corporations. 


TABLE  83t 

Percentage  of  !N^et  Income  Paid  in  State  Taxes  Plus  Taxes 
ON  Intangible  Elements  in  Special  Franchise  Values 

Public  Service  Corporations  in  New  York  State 

Ratio  of  State  taxes  plus 
taxes  on  intangible  ele- 
ments in  special  fran- 
chise values  to  net 
income 

Class  of  Utility  Percentage 

Steam  Railroads 3. 74 

Electric  Railways   15 .  40 

Telephone  and  Telegraph 7 .  10 

Gas  and  Electric 7.15 


When  the  taxes  on  intangible  elements  in  special  franchise 
values  are  included  with  State  taxes  the  public  service  corpora- 
tions, with  the  single  exception  of  steam  railroads,  are  seen  to  be 
paying  a  larger  percentage  of  net  income  in  meeting  these  taxes 
than  the  business  corporations  pay  under  article  9-a.  This  tax, 
it  was  noted,  amounted  to  4.3  per  cent  of  net  income.  The  burden 
is  materially  heavier  in  the  case  of  electric  railways,  which  pay 
15.4  per  cent  of  their  net  income  on  these  taxes.*  The  difference 
is  less  in  the  telephone  and  telegraph  and  gas  and  electric  groups, 
while  steam  railroads  show  the  smallest  percentage. 

t  The  following  ratios  are  based  upon  complete  returns  from  all  public  utilities 
in  New  York  State  for  the  years  191 3-1. 5-1 7-18.  For  all  groups  except  telephone 
and  telegraph  companies  the  ratios  are  less  than  in  the  table  based  upon  ten-year 
averages : 

Ratio  of  State  taxes  plus 
taxes  on  intangible  ele- 
ments In  special  fran- 
chise values  to  net  in- 
come 

Class  of  Utility  Percentage 

Steam  railroads 3.23 

Electric    railways 14. 12 

Telephone    and    telegraph 7 .  10 

Gas  and  electric 6 .  62 

♦As  in  the  preceding  table  these  ratios  are  based  upon  aggregate  taxes  and 
aggregate  net  Income  for  sample  groups  from  each  class.  Only  corporations 
operating  at  a  profit  have  been  included. 


V 


\ 


260 

For  the  final  comparison  taxes  paid  on  personal  property  by 
public  service  corporations  are  included  with  State  taxes  and 
taxes  on  intangible  elements  in  special  franchise  values.  This 
combination  includes  all  taxes  not  levied  on  real  property,  and  is 
thus  directly  comparable  vsrith  the  net  income  tax  on  business  cor- 
porations. The  latter  replaces  all  franchise  taxes  and  personal 
property  taxes,  it  will  be  recalled. 

The  following  table  shows  the  percentage  of  net  income  paid 
in  these  combined  taxes. 


TABLE  84* 

Percentage  of  'Niet  Income  Paid  in  State  Taxes  Plus  Taxes 
ON  Personal  Property  and  Taxes  on  Intangible  Ele- 
ments IN  Special  Franchise  Values 

Public  Service  Corporations  in  New  York  State 

Ratio  of  State  Taxes 
Plus  Personal  Prop- 
erty Taxes  and 
Taxes  on  Intangible 
Elements  In  Special 
Franchise  Values  to 
Net  Income. 
Class  of  Utility  Percentage 

Steam  Railroads  3. 88 

Electric  Railways 15 .  60 

Telephone  and  Telegraph 7 .  20 

Gas  and  Electric 7 .  40 


From  the  above  tables  it  is  apparent  that  when  all  public  utility 
taxes  other  than  those  on  real  property  are  expressed  in  terms  of 
net  income  there  are  striking  inequalities  of  burden  as  between 
the  different  utility  groups.  When  these  burdens  are  compared 
with  that  borne  by  busines  corporations  taxed  under  article  9-a 

♦  The  following  ratios  are  based  upon  complete  returns  from  all  public  utilitios 
in  New  Yorli  State  for  the  years  1913-15-17-18. 

Ratio  of  State 
taxes  plus  taxes 
on  intangible  ele- 
ments in  special 
franchise  values 
and  personal 

'  property  taxes  to 

net  income 

Class  of  Utility  Percentage 

Steam  railroads 3 .  37 

Electric    railways    !!!!....!.! 14  52 

Telephone  and  telegraph ......'.'......'.'.'.".'  7  56 

Gas  and  electric ...!...'.*....  7 !  24 

These  ratios  are  based  upon   returns  from   a  larger  group   than  are  the  ratios 
given  in  Table  84,  but  represent  conditions  for  four  years  only   (1913-15-17-18). 


#/ 


261 

it  is  seen  that  all  the  public  service  corporations,  with  the  excep- 
tion of  steam  railroads,  pay  more  than  do  business  corporations. 
The  latter  pay  approximately  4.3  per  cent  of  net  income  (taking 
as  the  base  net  income  before  property  taxes  have  been  deducted). 
Comparable  taxes  for  steam  railroads  amounted  to  3.88  per  cent 
of  net  income.  For  telephone  and  telegraph  companies  the  figure 
is  7.2  per  cent,  and  7.4  per  cent  for  gas  and  electric  companies. 
Electric  railways  show  the  highest  percentage,  the  amount  paid  in 
State  taxes,  taxes  on  intangible  elements  in  special  franchise 
values  and  taxes  on  personal  property  amounting  to  15.6  per  cent 
of  net  income. 

The  complexities  in  the  present  system  of  taxing  public  utilities 
have  been  brought  out.*  The  fact  that  present  taxes  fall  with 
very  unequal  weight  upon  the  individual  corporations  within  any 
group  has  been  demonstrated.  It  has  been  shown  that  the  different 
utility  groups  are  not  on  equal  terms  in  the  matter  of  tax  burden, 
when  that  burden  is  expressed  in  terms  of  net  income.  In  the 
final  section  the  burden  of  taxes  on  the  chief  classes  of  public 
service  corporations  has  been  compared  with  the  burden  of  taxes 
on  mercantile  and  manufacturing  corporations,  f  The  figures 
there  presented  have  shown  that  business  corporations  and  public 
service  corporations  bear  unequal  tax  burdens,  the  public  utility 
groups,  with  one  important  exception,  paying  more,  in  terms  of 
net  income,  than  do  mercantile  and  manufacturing  corporations. 

The  relation  between  taxes,  net  income  and  gross  income  of 
public  utilities. —  In  the  preceding  study  of  the  relative  burden  of 
taxes  upon  public  service  corporations  in  New  York  State,  net  in- 
come has  been  used  as  the  chief  standard  of  comparison.  Net  income 
as  here  used  is  gross  income  less  interest  charges  and  certain  other 
deductions.  This  standard  has  certain  defects,  chief  of  which  is 
one  which  arises  from  the  varying  methods  employed  by  different 
]niblic  utilities  in  securing  capital.  The  net  income  of  a*  company 
securing  most  of  its  capital  by  bond  issue  would  be  relatively 
small,  while  the  corresponding  figure  for  a  company  financed  by 
the  sale  of  stock  would  be  much  greater.     The  two  might  be  in 


♦  Cf.  supra,  p.  178  ,  ,.         ._. 

t  All  real  property  taxes  paid  by  both  groups  have  been  excluded  in  making  this 
comparison. 


262 

positions  of  equal  strength,  yet  if  the  burden  of  taxes  were  meas- 
ured on  the  net  income  basis  the  former  would  appear  to  be  in 
a  position  distinctly  less  favorable  than  the  latter.  It  is  desirable, 
therefore,  to  determine  the  relative  importance  of  interest  charges 
and  other  deductions  from  gross  income  for  the  various  classes  of 
public  utilities  in  'New  York  State. 

This  comparison  has  been  made  for  the  six-year  period  1912- 
1917,  inclusive.  The  four  chief  classes  of  public  utilities  report- 
ing to  the  New  York  State  Public  Service  Commission  have  been 
included.  "No  attempt  has  been  made  to  allocate  either  net  or 
gross  income  to  New  York,  or  to  separate  New  York  taxes  from 
others.  We  are  desirous  of  determining  the  general  relations 
between  tax  payments  and  net  and  gross  income,*  and  for  this 
purpose  no  allocation  is  required. 

The  details  of  this  comparison,  by  years,  are  presented  in 
tables  XY,  XYI,  XYII  and  XYIII  in  the  Appendix.  The  fol- 
lowing is'  a  summary,  showing  the  relations  between  the  average 
annual  gross  income,  deductions  from  gross  income,  net  income 
and  tax  accruals,  for  the  different  public  utility  groups. 

*  Gross  income  is  the  sum  of  operating  income  (i.  c,  gross  operating  revenues 
less  operating  expenses,  taxes  assigned  to  operations  and  uncollectible  revenues) 
and  non-operating  income,  the  latter  composed  of  such  net  items  as  rents  and 
interest  and  dividends  received. 


/ 


263 


TABLE  85 

Comparison  Between  Gross  Income,  Deductions  From  Gross 

Income,  Net  Income  and  Tax  Accruai^ 

Public  Service  Corporations  in  New  York  State 

(Based  on  Average  Annual  Figures,  1912-1017) ^^^ 


ClasB  of  utility 


Gross  income 


Deductions 

from 

gross 

income 


Net  income 


Steam  railroads 

Electric  railways  . 

Telephone  companies .  .... 
Gas  and  electric  companies 

ii 


1255,133,333 
52,163,576 
64,300,080 
53,825,744 


$146,458,499 
38,759,513 
14,564,952 
20,969,034 


$108,674,833 
13.404,063 
49,735,138 
32,856,709 


Ratio  of 

total 

deductions 

from  groes 

income 

to  gross 

income 

(percentage) 


57.13 
74.30 
22.65 
38.95 


Class  of  utility 


Tax  accruals 


Steam  railroads 

Electric  railways. . . . . . 

Telephone  companies. 
Gas  and  electric  com 
panics 


$31,949,333 
8,116,185 
4.971,285 

7.740.447 


Gross  income 

before 
deduction  of 
tax  accruals 


$287,082,666 
60.279,761 
69.271.366 

61.566,191 


Net  income 

before 
deduction  of 
tax  accruals 


Ratio  of 
tax  accruals 

to  gross 

income  before 

deduction 

of  tax 

accruals 

(percentage) 


$140,624,166 
21.520.248 
54.707,423 

40.597.155 


Ratio  of 
tax  accruals 

to  net 

income  before 

deduction 

of  tax 

accruals 

(percentage) 


11.13 

13.46 

7.17 

12.58 


22.71 

37.71 

9.09 

19.10 


The  varying  importance  of  the  gross   income   deductions   is 
brought  out  in  the  column  showing  the  ratio  of  these  deductions 
(consisting  chiefly  of  interest  charges  and  rentals)  to  gross  income 
For  telephone  companies  they  constitute  but  22.65  per  cent  of 
^oss  income,  while  for  electric  railways  these  deductions  are 
74  30  per  cent  of  gi'oss  income.     Gas  and  electric  corporations 
and  steam  railroads  stand  between  these  two  limits,  the  figure  for 
the  former  being  38.95  per  cent  and  for  the  latter  57.13  per  cent. 
These  figures  indicate  the  relative  importance  of  the  various 
methods  of  securing  capital  employed  by  the  different  utilities, 
the  electric  railways  being  distinctly  more  dependent  upon  bor- 
rowing,  with  definite  contractual  obligations,  than  are  the  other 


f  I 


(t 


264 

utilities.     "Net   income,    after  these  contractual   deductions  are 
made,  will  be  correspondingly  lower. 

These  differences  are  more  sharply  brought  out  by  the  figures 
showing  the  relation  of  tax  accruals  to  gross  and  net  income.  For 
telephone  companies  tax  accruals  constitute  but  9.09  per  cent  of 
net  income  (before  deduction  of  tax  accnials),  the  corresponding 
figure  for  electric  railways  being  37.71  per  cent.  Steam  railroads 
and  gas  and  electric  corporations  show  less  variation,  the  former 
being  22.71  per  cent,  and  the  latter  19.10  per  cent. 

These  wide  variations  are  not  entirely  ironed  out,  but  become 
much  less  pronounced,  when  gToss  income  is  used  as  the  standard 
of  comparison.  Electric  railways  still  stand  at  the  upper  limit, 
taxes  constituting  13.46  per  cent  of  gross  income,  and  telephone 
corporations  are  at  the  lower  limit  with  a  ratio  of  7.17  per  cent, 
but  the  spread  between  the  two  is  less  marked.  Were  the  non- 
operating  income  of  the  latter  group  excluded,  the  difference 
would  be  less  pronounced.  Steam  railroads  have  a  ratio  of  11.13 
per  cent,  and  gas  and  electric  companies  a  ratio  of  12.58  per  cent. 
'Net  income  is  not,  therefore,  a  perfect  standard  for  measuring 
the  burden  of  taxes.  Insofar  as  there  are  variations  in  the 
methods  employed  in  securing  capital,  this  standard  is  imperfect. 
The  extent  to  which  these  variations  exist  and  their  effect  upon  the 
tax  ratios  for  the  different  classes  of  utilities  have  been  indicated 
above. 

The  Burden  of  Taxes  on  Insurance  Companies 

Insura^ice  companies  doing  business  in  New  York  State  are 
taxed  on  their  gross  premiums  less  certain  deductions  allowed  by 
law.*  It  is  desirable  to  determine  the  relative  burden  of  these 
taxes  upon  the  individual  insurance  companies,  and  upon  the 
insurance  companies  as  a  whole,  in  ecmparison  with  other  classes 
of  corporations.  Securing  a  standard  of  comparison  is  not  possible 
for  certain  classes  of  insurance  companies,  notably  mutual  life 
insurance  companies.  Difficulties  are  also  encountered  in  con- 
nection with  companies  doing  casualty  and  accident  business.  For 
these  classes  of  corporations  a  figure  directly  comparable  to  the 
net  income  of  business  corporations  or  public  utilities  cannot  be 

♦  Cf.  9upra,  p.      8 


I   ! 


265 

secured.  For  tire  and  fire  and  marine  stock  companies  it  is  pos- 
sible, however,  to  approximate  the  net  profits  derived  from  Xew 
York  business.  These  figures  have  been  secured  for  the  ten-year 
period  1911-1920,  inclusive,  and  have  been  used  as  a  standard 
for  determining  the  burden  of  taxes  paid  on  gross  premiums 
during  this  period.* 

The  general  procedure  in  determining  net  profits  from  New 
York  business  has  been  as  follows:  The  net  underwriting  profit 
for  the  period  in  question  has  been  determined  by  subtracting 
from  the  total  amount  received  as  net  premiums  from  New  York 
business  the  amount  of  losses  paid  in  New  York  State  plus  40 
per  cent  of  the  net  premiums.  The  latter  figure  represents  general 
underwriting  expenses,  the  figure  of  40  per  cent  being  the  average 
relation  of  such  expenses  to  net  premiums.  A  correction  has  been 
made  for  the  lag  between  losses  incurred  and  losses  paid.  To  net 
underwriting  profit  as  thus  determined  an  allocated  portion  of  the 
gain  from  investments  has  been  added,f  the  sum  being  net  profits 
from  business  in  New  York  State.  Inasmuch  as  taxes  have  been 
deducted  in  securing  this  figure,  being  included  in  the  expense 
item,  they  are  added  back.  The  ratio  of  taxes  to  the  base  thus 
secured  is  then  worked  out.  An  exact  determination  of  the  net 
profit  from  New  York  business  is  impossible,  but  the  above  method 
gives  an  approximation  sufficiently  close  for  the  purpose. 

The  following  table  present  the  results  secured  by  these  calcula- 
tions. Tiie  figures  apply  to  domestic  companies  and  foreign  com- 
panies doing  business  in  this  State. 

!  it  should  be  noted  that  no  account  is  here  taken  of  other  taxes  or  license  fee«. 
tThe  basis   of  allocation   has   been   the   relation   of  total   premiums   received   U 
New  lork  to  total  premiums  written. 


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267 

The  variation  in  burden  on  the  general  classes  of  insurance 
companies  considered  is  apparent.  When  taxes  are  expressed  in 
terms  of  net  income  the  percentages  vary  from  less  than  1  per 
cent  to  over  25  per  cent  for  companies  operating  at  a  profit.  The 
largest  single  group  is  found  within  the  class  paying  from  5  per 
cent  to  6  per  cent  of  net  income  in  taxes.  As  representing  the 
average  situation  that  company  lying  midway  in  the  distribution 
(the  median)  may  be  selected.  Including  only  the  profitable  com- 
panies, the  median  has  a  value  of  5.35  per  cent.  For  fire  com- 
panies alone  the  value  is  5.1  per  cent,  and  for  fire  and  marine 
companies  alone  it  is  5.71  per  cent. 

In  securing  an  average  of  this  type  (the  median)  equal  weight 
is  given  to  all  companies,  large  or  small.  The  burden  of  taxes 
upon  the  group  as  a  whole  is  perhaps  better  represented  by  the 
ratio  of  the  aggregate  amount  paid  in  taxes  to  the  aggregate  net 
profit  from  business  in  the  State  of  New  York.  These  ratios  are 
presented  below,  all  companies  being  included  in  one  comparison 
and  only  the  profitable  companies  in  the  other. 


TABLE  87 

Relation  of  Taxes  on  Gross  Premiums  to  Net  Profit  fro\ 

New  York  Business 


Fire  and  Fire  and  Marine  Insurance  Companies 


Number   of   corn- 
Class  of  insurance  panies  included 

Fire    33 

Marine  and  fire  and  marine 58 

All  companies  91 


Ratio  of  aggre> 
gate  taxes  to 
aggregate  net 
profits  (ex- 
pressed as  a 
percentage  re- 
lation) 

4.76 

5.89 

5.75 


268 


TABLE  88 

liELATlON  OF   TaXES  ON   GrOSS  PbEMIUMS  TO  Net  PkOFIT  FllOM 

New  York  Business 

Fire  and  Marine  Insurance  Companies 

(Excluding  companies  operating  at  a  loss) 

Ratio  of  aggre- 
gate taxes  to 
aggregate  net 
profits  (ex- 
pressed as  a 
percentage  re- 
lation) 

4.10 
4.92 


^,  ^  Number   of   com- 

Class  of  insurance  panics  included 

Fire   32 

M«irine  and  fire  and  marine 50 

Total ^ 


4.84 


The  ratios  based  upon  aggregate  figures  are  somewhat  greater 
for  companies  doing  a  marine  or  fire  and  marine  business  than 
for  the  fire  insurance  companies.  This  is  true  when  companies 
operating  at  a  loss  are  excluded  as  well  as  when  these  companies 
are  included. 

For  the  entire  group  of  91  companies  studied  (including  9 
companies  operating  at  a  loss)  the  taxes  on  gross  premiums 
amounted  to  5.75  per  cent  of  net  profits  from  [New  York  business 
during  the  decade  1911-1920.  For  the  82  companies  reporting 
an  average  profit,  the  ratio  of  these  taxes  to  net  profits  was  4.84 
per  cent. 

The  frequency  table  presented  above  shows  that  present  taxes 
fall  with  unequal  weight  on  different  insurance  companies,  when 
net  profits  are  used  as  the  standard  of  comparison.  The  general 
jx>sition  of  the  insurance  companies  as  a  whole,  in  comparison 
with  financial  institutions,  business  corporations,  and  public  utili- 
ties may  be  determined  by  reference  to  the  tables  presented  in  the 
earlier  sections  of  this  report.* 

•  The  comparison  should  be  made  with  the  understanding  that  the  ratios  for  the 
different  classes  of  corporations  have  been  derived  by  different  methods    and  are 
based  upon  periods  of  varying  length.     As  between  the  different  groups,  therefore 
they  should  be  used  to  establish  general  relations  only.     The  corfespdnding  tables 
for  other  classes  of  corporation  appear  on  pp.  191,258-261  -puuuiuif  laoiea 


JY 


269 


Expenses  Involved  in  Paying  Taxes  and  Contesting  Assess- 
ments 

The  burden  of  a  complicated  tax  system  is  not  measured  by  the 
amount  of  the  taxes  paid,  alone.  The  corporations  taxed  are  fre- 
quently put  to  considerable  administrative  and  other  expense  in 
complying  with  the  provisions  of  the  tax  law. 

An  investigation  to  determine  the  amount  of  these  expenses 
was  conducted  by  the  Committee,  all  public  service  corporations 
in  the  State  being  circularized.  Of  the  1628  corporations  to  which 
questionnaires  were  sent,  replies  were  received  from  717,  or  44.1 
per  cent  of  the  total  number.  Sixty-four  of  these  replies  were 
unsatisfactory.  Of  the  remaining  653  corporations,  323  reported 
either  that  no  expenses  were  involved  in  paying  taxes,  or  that  it 
was  impossible  to  segregate  these  expenses.  Figures  in  regard 
to  expenses  were  received  from  330  public  service  corporations. 
These  figures  are  summarized  in  the  following  table : 

TABLE  89 
Total  Expenses  Involved  in  Paying  Taxes 

Total  annual 

Total  annual  expenses  in- 

expensesin-  volved      in  Total  annual 

dumber    or     volved      In  paying  expenses  in- 

replies      paying  spe-  other  taxes  volved      in 

^          ,    ^„.,                      stating  ex-     cial      fran-  (State   and  paying     aU 

Class  of  utility                    expenses         chise  tax  local)  taxes 

Steam  railroads 30  $12,993  $41,694  $54,687 

Electric  railways    27  8,798  17,631  26,429 

Express  and  bus  companies  6  15  15,346  15,361 

Pipe  lines 3  445  280  ^25 

Water  transportation   18  862  3,946  4,808 

Telephone   and   telegraph..  84  21,864  32,420  54*284 

Gas  and  electric 119  18,780  77,566  96^346 

Water  companies    43  1,707  2,521  4,228 

Total 330  $65,464         $191,404         $256,868 

These  figures  indicate  the  amount  of  burden  in  the  form  of 
administrative  expense  to  which  public  service  corporations  are 
put  in  complying  with  the  present  tax  laws.  For  the  330  cor- 
I>orations  from  which  figures  were  received,  these  expenses  amount 
to  more  than  one-quarter  of  a  million  dollars  annually.  The  total 
figure  for  all  corporations  in  the  State  would  exceed  this  amount, 
of  course. 


270 

In  addition  to  the  direct  cost  of  paying  taxes,  it  is  desirable  to 
determine  the  cost  of  contesting  assessments  of  special  franchises. 
The  following  table  presents  a  summaiy  of  the  returns  from  OS 
corporations  which  reported  such  costs. 

TABLE  90 

Expenses  Involved  in  Contesting  Special  Franchise  Assess- 
ments 

Public  Service  Corporations  in  New  York  State 

Number  of  roplies 
stating   cost   of  Total  annual  cost 
contesting      as-  of  contesting  as- 
Class  of  utility                                  sessments  sessments 

Steam  railroads    ^7  $6,257 

Electric  railways    10  2,381 

Water  transportation ^  ^10 

Telephone  and  telegraph 6  1,047 

Gas  and  electric 54  98,925 

Water  companies 19  /97 

Total 98  $199,917 

The  replies  received  on  this  subject  do  not  give  a  complete 
account  of  the  situation  in  all  utility  groups,  but,  even  though 
limited,  indicate  the  importance  of  these  costs.  For  the  98  com- 
panies replying  the  annual  cost  of  contesting  special  franchise 
assessments  amounted  to  $109,917.  Adding  this  to  the  other 
expenses  of  paying  taxes  the  total  annual  expenses,  for  330  cor- 
porations alone,  amount  to  $366,785.  Of  this  total,  $175,381,  or 
48  per  cent,  represents  ex[>enses  connected  with  the  payment  of 
the  special  franchise  tax. 

It  is  obvious  that  exact  figures  as  to  the  expenses  involved  in 
complying  with  the  tax  laws  of  the  State  are  unobtainable.  The 
average  corporation  has  no  means  of  segregating  such  expenses 
from  other  administrative  expenses.  The  figures  presented,  there- 
fore, are  to  be  taken  as  indicating  the  degree  of  expense  to  which 
taxpayers  are  put,  rather  than  as  measuring  these  costs  exactly. 
Even  with  this  qualification,  however,  the  replies  received  indicate 
how  considerable  are  these  administrative  and  legal  charges,  which 
constitute  a  burden  to  the  taxpayer,  even  though  they  bear  no 
fruit  for  the  State. 


jr 


STATISTICAL  APPENDICES  TO  PART  II 


[2711 


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295 


TABLE  V-D.  INCOME  WHOLLY  EXEMPT  FROM  FEDERAL  INCOME 
TAX,  REPORTED  BY  TRANSPORTATION  AND  OTHER  PUBLIC  UTIL- 
ITIES AND  BANKS  AND  TRUST  COMPANIES,  STATE  OF  NEW  YORK 

(Corporation  income  and  profits  tax  returns  for  the  calendar  year  ending  December 
3L  1918.    Table  compiled  by  Statistical  Division,  Income  Tax  Unit,  Bureau  of 

Internal  Revenue) 

Interest  on 
Divi    nds  from  obligations 

INDUSTRIAL  GROUPS  other  corporations  of  the 

subject  to  United  States, 

federal  income  tax  etc. 


CI  ^  X  i>.  ■*  OS  OS  t>. -^  r>» 

SiN  OS  Tj< -^  OS  OS  (N -H  ^ 

-H  CO '*  o  t>.  OS  o  r-  ^ 

CONO»00-H0«3t>r  (N 

O0SX0S-O-«1«^C^-«  OS 

0»0!N'*OSCOX«  t>. 

i-Ji-<-t>-i-lt^C0t>.t>.CO  CO 

X^C<lt>»t>.       CO-HCO  CO 


X 
CO 

OS 

CO 


r>-osxco 

XlN.b.'^ 

xcooso 
oo>oaa 

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eg-*     CO 


o 

CO 


»o 
CO 


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QCO'HCOXO'-^OS-H 
OOSOXOCNXCS 

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o 

t- 

OS 

X 

CO 

X 

r-4 

CI 

s 

CO 

1—1 

CO 

CO 

s 

xo<^t^ 

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t>.  CI  COOS 

cooeo»o* 
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Transportation  and  other  public  utilities: 

Steam  railroads 

Electric  railways 

Electric  light  and  power 

Gas  companies 

Telephone  and  telegraph  companies 

Water  works 

Other  railroads 

Water  transportation 

Local  transportation  —  Cartage,  storage,  etc . . 

All   other   public   utilities,    including   express 

companies 


$5,692,239 

1,146,248 

1,067,935 

2,208,624 

40,799,236 

307,495 

1,865,935 

894,073 

352,108 

2,983,391 


Banks  and  trust  companies: 

Bajoks  —  general  —  not  properly  defined,  or 
private  bankers 

National  banks 

State  banks 

Trust  companies 

Related  business,  including  —  Stock  and  bond 
brokers,  realty,  holding  and  development 
companies,  real  estate  loan  and  insurance 
agents,  holding  and  leasing  realty,  etc 

Total,  banks  and  trust  companies 


$475,708 

3,588,047 

129,556 

1.992,889 


",621,828 


09 


P' 


8 

o 

V 

o 
04 


s 

u 

JS 

a 

OS 

b. 

60 

Ji 


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OS 


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a 

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$727,-272 

7,630 

152,087 

76,210 

136,405 

4,127 

100,380 

7-23,518 

54,321 

65,631 


Total,  transportation  and  other  public  utilities. . . .  $57,317,284        $2,047,581 


$968,511 

4,208,761 

195,696 

3,005,057 


259,253 


IJ, 808,028    $8,637,278 


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299 


TABLE  YIII 
Comparison  of  Capital,  Surplus,  Aggregate  Resources  and 
Realty  Holdings  of  Banks,  Trust  Companies  and  Invest- 
ment Companies  in  the  State  of  New  York,  June  30, 
1920 

(Based  upon  the  reports  of  the  Comptroller  of  the  Currency  and  of  the  Super- 
intendent of  Banks  of  the  State  of  New  York) 


Number  of  institutions 

Capital 

Surplus  and  undivided 
profits 


Total  capital,  sur- 
plus and  undi- 
>'ided  profits. . . . 

Aggregate  resources . . . 

Banking   houses,   fur- 
niture and  fixtures .  . 
Other  real  estate 


National 
banks 


491 

$194,171,000 
355,224,000 


$549,395,000 
5.573,517.000 


t42,935.000 
2,544,000 


State  banks 


229 

$53,793,000 

76.303.000 


$130,096,000 


Trust 
companies 


97 

$145,594,000 
208.355,000 


$3.13,949.000 


1,460,557,000  3,563.321,000 


21,282,000 


.55.442,000 


Investment 
companies* 


29 
$22,115,000 
6.187,000 


Savings 
banks 


141 


t$l88.020.00O 


$28,302,000  

134 , 861 .000  $2,588.320,00 0 


647.000 
304.000 


10.465  000 
4.972.000 


*  The  classification  of  investment  companies  in  the  report  of  the  State  Superintendent  of  Bank» 
does  not  correspond  exactly  with  the  classification  set  up  in  the  Tax  Law.  The  figures  here  given 
follow  the  former  classification,  except  that  foreign  banking  corporations  are  excluded.  The 
condition  of  investment  companies  is  shown  as  of  December  31,  1920. 

t  Surplus  on  market  value  of  stocks  and  bonds.  The  surplus  on  par  value  of  stocks  and  bonds 
amounted  to  $268,363,000. 

^  This  item  may  be  subdivided  into  "banking  houses,"  $40,211,003,  and  "furniture  and  fix- 
tures,"  $2,724,000. 


»         • 


300 

TABLE  IX 
Summary  of  Financial  Institutions  in  ]^ew  York  State 

Reporting  to  the  Special  Joint  Legislative  Committee  on  Taxation  and 

Retrenchment 


CLASS 


National  banks 

State  banks 

Tru8t  companies 

Investment  companies. 
Savings  banks 


Total 

number 

reporting* 


Number 
operating  at 
a  profit  (i.  e. 
reporting  a 
net  income, 
1918-1920) 


401 

158 

82 

15 

135 


Number 
operating 
at  a  Ioa3 


39S 

156 

81 

15 

135 


S 
2 
1 


fi^^  Tfc2ff.^*'T®1ii'***^fi°.**^  *S®  subsidiary  tables  do  not  exactly  correspond  to  these 
f 5^i^i.  7k  "  "  *^"*  ^*¥  ^^^  ^^\  ''«P^*«»  ''ere  received  from  a  few  institutions  after  some  of  Sa 
?n  ^fe  «^K  ^^r  °  "^riY^-  It  should  aJso  be  noted  that  the  corporations  listXbovTa!d?nc?uded 
in  the  subsidiary  tables  are  only  those  from  which  complete  returns  were  reSved  It  was  ne^- 
Bary  to  exclude  certain  of  the  returns  received  because  of  deficiencies  S  twiu  ' 


TABLE  X 
Capital,   Income,  and  Tax  Payments,   :NrATioNAL  Banks  in 

New  York  State 

(Based  on  returns  to  the  Special  Joint  Legislative  Committee  on  Taxation  and 

Retrenchment) 

1918  1919  1920 

Number  of  complete  return'* 397  397  ogj 

Capital,  surplus  and  undivided  profits    $403,820,653    $454,361,969    $517, 122,65.5 
Net  taxable  income  as  returned  to  the 

Commissions  of  Internal  Revenue, 

United  States 52,819,551        65,079,715        70,651,231 

^fi'^'^'' 187,743  205,347  m,6S5 

Dividends  received  from   other  cor- 
porations subject  to  Federal  Income 

,  *^^*-  • ;  •  •. 790,357  832,824  1,351,164 

Non-taxable  mterest  on  Federal  bonds.  3 ,  050 ,  626  4 ,  604 ,  525  5  028  755 

State  net  taxable  income 56,497,734  71,557,238  76,'972,'30S 

^^fi''^*^ UrW  245,521  *  45,733 

Bank  stock  tax  f 4,008,206  4,543,619  5,171,226 

General  property  tax 998,592  1,056,204  1,161,951 

Total  New  York  taxes  paid 5,006,798  5,599,823  6,333,'l77 

:«  TTKuVn""  ^o'^^iderable  discrepancy  between  this  figure  for  1918  and  the  corresponding  item 
m  Table  V-D.  prepared  by  the  Bureau  of  Internal  Revenue.     In  computing  tax  ratuw  the  abov^ 
figure,  based  upon  returns  of  the  individual  banks  to  this  Committee    has  bin  use?     Th«  Sf' 
ference  affects  the  ratios  by  less  than  half  of  1  per  cent,  however 

t  There  is  a  lag  o^  one  year  in  the  annual  tax  payments  recorded  in  the  Report  of  the  Tax  Com- 
mission   as  compared  with  the  figures  given  above.     Thus  the  1920  figures  above  would  amiar 
under  the  year  1921  (the  fiscal  year  m  which  received)  in  the  Report  of  the  Tax  ComnfiSS^n 
This  api^hes  to  the  tax  figures  for  all  financial  institutions.  t^ommissioa 


-t      > 


301 


TABLE  Xa 

IvELATiox  Between  Taxes  and  INet  Income,  National  Banks 

IN  New  York  State 


General  property  tax  to  State  Net 
taxable  income* 

Bank  stork  tax  to  State  net  taxable 
income 

General  property  tax  plus  bank  stock 
tax  to  State  net  taxable  income*. . . 

General  property  tax  to  capital,  sur- 
plus and  undivided  profits 

General  property  tax  plus  bank  stock 
tax  to  capital,  surplus  and  undivided 
profits 

Dividends  received  from  other  cor- 
porations to  State  net  taxable 
income 

Non-taxable  interest  on  Federal  bonds 
to  State  net  taxable  income 


1918 

1919 

1920 

Percentage 

Percentage 

Percent 

tage 

1.7 

1.5 

1.5 

7.0 

6.3 

6.7 

8.8 

7.8 

8.2 

0.24 

0  23 

0.22 

1.2 


1.3 


5.3 


1.2 


1.1 


6.4 


1.2 


1.7 


6.5 


*  If  net  income  before  property  taxes  have  been  deducted  is  used  as  a  base,  the  following  per- 
centages are  secured: 


General  property  tax  to  net  income 

General  property  tax  plus  bank  stock  tax  to  net  income . 


1918 

1919 

1920 

1.7 

1.5 

1.5 

8.7 

7.7 

8.1 

TABLE  XI 

Capital,  Income^  and  Tax  Payments,  State  Banks  in 

New  York  State 

(Based  on  returns  to  the  Special  Joint  Legislative  Committee  on  Taxation  and 

Retrenchment) 

1918  1919  1920 

Number  of  complete  returns 157  157  157 

Capital,  surplus,  and  undivided  profits.      $67 ,  339 ,  913  174 ,  294 ,  369  $97 ,  559 ,  078 

Net  taxable  income 7,490,900  11,568,099  14,403,961 

Deficits 38,797  227,943  39,843 

Dividends  received  from  other  cor- 
porations subject  to  Federal  tax. .              175,195  211,094  268,512 

Non-taxable  interest 518 ,  71 1  9S7 ,  878  954 ,  677 

State  net  taxable  income 8,159,571  12,546,157  15,630,408 

Deficits 13,562  7,029  43,10t 

Bank  stock  tax 673,399  742,943  975,590 

General  property  tax 467,864  474,387  567,637 

Total  New  York  taxes  paid 1 ,  141 ,  263  1 ,  217 ,  330  1 ,  543 ,  227 


■MM 


302 


TABLE  XIa 
Relation    Between    Taxes    and   Income,    State    Banks    in 

New  York  State 


General  property  tax  to  State  net 
taxable  income* 

Bank  stock  tax  to  State  net  taxable 
income 

General  property  tax  plus  bank  stock 
tax  to  State  net  taxable  income* .... 

General  property  tax  to  capital,  sur- 
plus and  imdivided  profits 

General  property  tax  plus  bank  stock 
tax  to  capital,  sxuplus  and  undivided 
profits 

Dividends  received  from  other  cor- 
porations to  State  net  taxable 
income 

Non-taxable  interest  on  Federal  bonds 
to  State  net  taxable  income 


1918 

1919 

I9iX) 

Percentage 

Percentage 

Percentage 

0.7 

3.7 

3.6 

8.2 

5.9 

6.2 

13.9 

9.7 

9.S 

0.69 

o.6r> 

0.5S 

1.7 


2.1 


6.3 


1.6 


1.6 


7.8 


1.5 


1.6 


6.1 


♦  If  net  income  before  property  taxes  have  been  deducted  ia  used  as  a  base,  the  followinir  oer- 
centagea  are  secured: 


General  property  tax  to  net  income 

General  property  tax  plus  bank  stock  tax  to  net  income 


1918 

1919 

1920 

5.4 

3.6 

3.5 

13.3 

9.4 

9.tt 

TABLE  XII 
Capital,  Income,  and  Tax  Payments,  Trust  Companies  in 

^ew  York  State 

(Based  on  returns  to  the  Special  Joint  Legislative  Committee  on  Taxation  and 

Retrenchment) 

1918  1919  1920 

Number  of  complete  returns 82  82  82 

Capital,  surplus,  and  undivided  profits.    $281,773,403    $292,764,579    $314,430,509 
Net  taxable  income  as  returned  to  the 

Commissioner  of  Internal  Revenue, 

United  States 

Deficits 

Dividends  received  from  corporations 

subject  to  Federal  income  tax 

Non-taxable  interest  on  Federal  bonds. 

State  net  taxable  income* 

Deficits 

Franchise  tax  levied 

Credit  given  on  account  of  State  bonds 

held 

Franchise  tax  paid 

General  property  tax 

Total  New  York  taxes 


24,947,640 
471,997 

3,460,124 

2,013,899 

30,284,791 

SS5,125 

2,817,734 

71,158 
2,746,576 
1,744,488 
4,491,064 


29,979,388 
118,890 

3,214,284 

1,784,109 

34,863,891 

2,927,645 

67,730 
2,859,915 
1,916,526 
4,776,441 


39,550,061 

242,702 

3,501,313 

1,328,241 

44,299,594 

162,681 

3,144,805 

76,346 
3,068,459 
2,024,347 
5,092,806 


*  To  secure  a  figure  comparable  to  those  given  above  for  national  and  State  banks,  the  an  ount 

Eaid  aa  a  franchise  tax  should  be  added  to  the  income  figures  here  given.    This  corrected  figure 
M  been  used  in  working  out  the  ratios. 


»l  • 


303 

TABLE  Xlla 
Relation  Between  Ta^es  and  Income,  Trust  Companies  in 

INTew  York  State 


General  property  tax  to  State  net 
taxable  income* 

Franchise  tax  to  State  net  taxable 
income 

General  property  tax  plus  franchise 
tax  to  State  net  taxable  income*. . 

General  property  tax  to  capital,  sur- 
plus and  undivided  profits 

General  property  tax  plus  franchise 
tax  to  capital,  surplus  and  undivided 
profits 

Credit  given  to  tax  levied 

Dividends  received  from  other  cor- 
porations to  State  net  taxable 
income 

Non-taxable  interest  on  Federal  bonds 
to  State  net  taxable  income 


1918 

1919 

1920 

Percentage 

Percentage 

Percentage 

5.2 

5.1 

4.3 

8.4 

7.6 

6.5 

13. G 

12.7 

10.6 

0.61 

0.65 

0.64 

1.5 

1.6 

1.6 

2.5 

2.3 

2.4 

11.4 

9.2 

7.S 

6.6 


5.1 


2.9 


centagrs*lre*se?ifred-^°'^^  Property  taxes  have  been  deducted  is  used  as  a  base,  the  folloxving  per- 

General  property  tax  to  net  income \?^o         ^4^8         ^4*  1 

General  property  tax  plus  franchise  tax  to  net  income ..'..'.  12.9         12.0         10 . 3 


TABLE  XIII 

Capital,  Income,  and  Tax  Payments,  Investment  Companies 

IN  I^Ew  York  State 

(Based  on  returns  to  the  Special  Joint  Legislative  Committee  on  Taxation  and 

Eetrenchment) 

1918  1919  1920 

Number  of  complete  returns 15  jg  j- 

^*P^**^ $8,150,000   $8,150,000   $12,150,000 

Surplus  and  undivided  profits 2,180,654  2,358,430  3,825,619 

■^^^^^ $10,330,654      $10,508,430      $15,975,619 

Net  taxable  income  as  returned  to  the 

Commissioner  of  Internal  Revenue, 

United  States 649,185  1,152,090         2,040,779 

Deficits 20,045     


304 


TABLE  XUl  — Concluded 

1918  1919  1920 
Dividends  received  from  corporations 

subject  to  Federal  income  tax 4,528  3,SSS  18,078 

Non-taxable  interest  on  Federal  bDnda.  13,729  18,753  12,988 

State  net  taxable  income* 037,412  1,174,731  2,071,845 

Deficits 30,015     

Tax  levied 34,031  35,809  56,481 

Credit  given  on  account  of  State  bonds 

held 10  50  50 

Tax  paidt 34,021  35,759  56,431 

General  property  tax 11,633  23,071  14,756 

Total  New  York  taxes  paid 45,654  58,830  71,187 

♦To  secure  a  figure  comparable  to  those  given  above  for  national  and  State  banks,  the  amount 
paid  as  a  franchise  tax  should  be  added  to  the  income  figures  here  given.  This  corrected  figure 
has  been  used  in  working  out  the  ratios. 

t  Cf.  footnote,  table  VIII. 


TABLE  Xllla 

Relation    Between    Taxes    and    Income,    Investment 
Companies  in  !N"ew  York  State 


General   property   tax   to   State   net 
taxable  income* 

Franchise  tax   to  State  net   taxable 
income 

General  property  tax  plus  franchise 
tax  to  State  net  taxable  income 

General  property  tax  to  capital,  sur- 
plus and  undivided  profits 

Franchise  tax  to  capital,  surplus  and 
undivided  profits 

General  property  tax  plus  franchise 
tax  to  capital,  surplus  and  undivided 
profits 

Credit  given  to  franchise  tax 

Dividends  received  from  other  cor- 
porations   to    State    net    taxable 

income 

Non-taxable  interest  on  Federal  bonds 
to  State  net  taxable  income 


1918 
Percentage 

1.6 

4.8 

6.5 

0.11 

0.32 


0.4 

0.0 


1919 

Percental 

1.9 

2.9 

4.9 

0.22 

0.3 


0.5 
0.0 


1920 
Percentage 

.7 

2.7 
3.4 
0.1 
0.3 


0.4 
0.0 


0.67 


•>  o 


0.33 
1.6 


0.87 
0.6 


*  If  net  income  before  property  taxes  have  been  de  lacteJ  is  usji  as  a  base,  the  followinz  per- 
centages are  secured: 


General  property  tax  to  net  income 

Genera!  property  tax  plus  franchise  tax  to  net  income. 


1018         1919         1920 
1.6  1.9  .7 

6.4  4.8  3.3 


•I* 


\\^ 


»»• 


•       • 


»      • 


305 


TABLE  XIV 

Surplus,    Income,   and    Tax   Payments,    Savings  Banks   in 

New  Yoek  State 

(Based  on  returns  to  the  Special  Joint   Legislative  Committee  on  Taxation  and 

Retrenchment) 

1918        1919  1920 

Number  of  complete  returns 13.5                     135  135 

Surplus  and  undivided  profits $144, 780,305    $147,036,336  $98,080, 640 

Net  earnings  (as  defined  in  New  York 

Banking  Law) 84,203,342        91,556,330  105,510,976 

Dividends  paid  to  depositors 72, 365 , 327        78 ,  336 , 727  85 , 971 ,  196 

Net  earnings  over  expenses  and  divi- 
dends*          14,274,279        16,920,404  23,275,379 

Franchise  tax  levied 1,447,803          1,470,363  980,806 

Credit  given  on  account  of  State  bonds 

held 183,512             184,892  188,929 

Tax  paid 1,264,291          1,285,471  791,877 

Property  tax  paid 887,605 

*  To  secure  a  figure  comparable  to  those  given  above  for  national  and  State  banks,  the  a-nount 

paid  as  a  franchise  tax  should  be  added  to  the  net  earnings  figures  here  given.  This  corrected 
ngure  has  been  used  in  working  out  the  ratios. 


TABLE  XlVa 

Relation  Between  Taxes  and  Net  Earnings,  Savings  Banks 

IN  ^N'ew  York  State 


General  property  tax  to  net  earnings  over  ex- 
penses and  dividends* 

Franchise  tax  to  net  earnings  ov«  expenses  and 
divi  lends 

General  property  tax  plus  franchise  tax  to  net 
earnings  over  expenses  and  dividends* 

Credit  given  to  franchise  tax  levied 


1918  1919  1920 

Percentage   Percentage  Percentage 


8.1 


7.0 


12.6 


12.5 


3.7 

3  3 

7.0 
19.3 


*  If  net  earnings  before  property  taxes  have  been  deducted  is  used  as  a  base,  the  following  per- 
centages are  secured: 


General  property  tax  to  net  earnings  over  expenses  and  dividends 

General  property  tax  plus  franchise  tax  to  net  earnings  over  expenses  and  dividends . 


1920 
3.6 
6.8 


I; 


»     • 


XI 


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310 


TABLE  XIX 


Paving  Costs  of  Electkic  Railways,  1911-1920 

(The  figures  presented  in  the  foUowing  tables  have  been  compiled  ^y*  committee 
representing  the  electric  railways  of  the  State,  and  are  printed  as  submitted  by  them. 
The  first  table  relates  to  the  56  companies  covered  by  the  Committee's  mvestigations 
The  figures  in  the  second  table  apply  to  35  additional  companies,  while  the  third 
table  presents  the  total  costs  for  the  entire  91  companies. 

The  Committee  does  not  wish  to  appear  to  take  the  position  that  these  paving 
charges  fall  in  the  same  category  with  taxes.    It  reaUzes  that  there  f  f  s^^^f^K  ^j^; 
ference  of  opinion  as  to  their  real  economic  character     A  portion  at  least  of  these 
charges  are  clearly  expenses  properly  chargeable  to  the  companies  to  o.™ *  ^ctual 
damlge  to  the  paving  because  of  the  presence  of  the  tracks.    The  P'^ecise^vidmg 
line  bitween  such  expenses  and  the  portion  of  the  payment  which  is  economically  of 
the  nature  of  a  tax  is  primarily  an  engineering  problem,  and  is  a  proper  subject  Jor 
open  legislative  hearings  at  which  the  city  engmeers  may  have  an  opportunitylto 
submit  their  views.) 

A — Paving  Costs  of  56  Companies 


1911-1920 


Amounts  chargeable  for  paving 


To 
capita' 

Year  ended  June  30,  1911 *52-*?It 

Year  ended  June  30.  1912 ISq?? 

Year  ended  June  30.  1913 llAyil 

Year  ended  June  30.  1914 ^'q^'IS 

Year  ended  June  30.  1915 ^oVl^ 

Year  ended  June  30,  1916 SI'oAn 

Six  months  ended  December  31,  1916 ^f '  «oa 

Year  ended  December  31.  1917 VA'l^ 

Year  ended  December  31,  1918 iTrlls 

Year  ended  December  31,  1919 lll'Hl 

Year  ended  December  31.  1920 2S2.^yi 

Total »7. 032. 198 

(19  Companies  report  no  paving  charges.) 


To 
maintenance 
$323,039 
422,824 
419,512 
485,851 
357,902 
319,619 
182,509 
375,369 
362,515 
466.208 
837,800 


Total 
$924,312 

868,592 
1,234.449 
1,806,586 
1,266.558 
1,054.235 

685,709 
1,046,895 

739,969 

837,647 
1,120,294 


$4,553,048      $11,585,246 


TABLE  XIX  —  Continued 

B  —  Paving  Costs  of  35  Companies 
1911-1920 


Amounts  chargeable  for  paving 


Year  ended  June  30.  1911 

Year  ended  June  30,  1912 

Year  ended  June  33,  1913 

Year  ended  June  30.  1914 

Year  ended  June  30,  1915 

Year  ended  June  S%  1916 

Six  months  ended  December  31,  1916 

Y^ar  ended  December  31,  1917 

Year  ended  December  31.  191S 

Year  ended  December  31,  1919 

Year  ended  December  31,  1923 

Total 

(12  Companies  report  no  paving  charges.) 


To 

To 

capital        maintenance 

Total 

$228,088 

$442,432 

$670,520 

291,309 

515,790 

807,099 

409,272 

1,013,147 

1,422,419 

446,. 303 

1,367,063 

1,813,366 

423,923 

1,103,733 

1.. 527, 656 

173,946 

1,054,158 

1,228.104 

141 ,081 

435,105 

576.186 

259,930 

702,607 

962.537 

103,124 

608,044 

709.168 

112,085 

954,118 

1,066.203 

76,627 

1,040,264 

1.116.891 

.     $2,665,688 

$9,234,461 

$11,900,149 

311 


TABLE  XIX  —  Continued 

C  —  Paving  Costs  0/  91  Companies 
1911-1920 


Amounts  chargeable  for  paving 


> 


Year  ended 
Year  ended 
Year  ended 
Year  ended 
Year  ended 
Year  ended 
Six  months 
Year  ended 
Year  ended 
Year  ended 
Year  ended 


June  30.  1911 

June  30,  1912 

June  30,  1913 

June  30,  1914 

June  30,  1915 

June  30,  1916 

ended  December  31, 
December  31,  1  )17. . 
December  31,  1018. . 
December  31,  191 -t. 
December  31,  1921.. 


1916 


Total . 


To 

To 

Capital 

Maintenance 

Total 

$829,361 

$765,471 

$1,594,832 

737.077 

938,614 

1,675.691 

1,224.209 

1,432,659 

2,656.868 

1,767,038 

1,852,914 

3,619,952 

1,332,579 

1,461,635 

2,794,214 

908,562 

1,373,777 

2,282.339 

644.281 

617.614 

1.261.895 

931.5.56 

1,077,876 

2,009.432 

480,578 

968,559 

1,449.137 

483,524 

1,420,326 

1,903,850 

359,121 

1.878,064 

2,237,185 

$9,697,886       $13,787,-509       $23,485,395 


(31  companies  report  n»  paving  charges.) 


; 


GENERAL   APPENDICES 


APPENDIX  A 


DIGEST  OF  LAWS,  OF  THE  VARIOUS  ^STATES  RELAT- 
ING]TO  THE  METHODS  OF  TAXING  PUBLIC 

UTILITIES 

PREPARED    FOR    THE    JOINT    LEGISLATIVE     COMMITTEE    ON 
TAXATION  |AND     RETRENCHMENT,    NEW    YORK    STATE,    BY 
C.    EVELEEN   HATHAWAY  AND  RUTH  MONTGOMERY,  LEGIS- 
LATIVE REFERENCE  SECTION,  NEW  YORK  STATE  LIBRARY 

REVISED   TO   OCTOBER,   1921 


[313] 


314 
DIGEST  OF  THE  LAWS  OF  THE  VARIOUS  STATES  RELATING 

PREPARED  FOR  THE  JOINT  LEGISI.ATIVE  COMMITTEE 
By  C.  Eveleen  Hathaway  and  Ruth  Montgomery,  Legislative 

Revised  to 


I 


STATE 

Public  utility  corporation 

Ad  valorem  tax 

Alabanta 

Railroad  corporations 

State  tax  commission  shall  assess  all  property  for  taxa- 
tion.  Valuation  of  intangible  property,  obtained  by 
deducting  value  of  tangible  from  total,  apportioned 
to  local  districts  on  basis  of  mileage.  Tax  rate 
same  as  for  general  property. 

General  Acts,  1919.  No.  328. 
a  3,  157.  167-169,  176,  178. 
183.  184.  361. 

Sleeping  car  companies 

Telegraph  companies 

Same  as  for  railroads ••• 

Telephone   companies   other   than 
community    telephone   lines  not 
operated  for  profit 

Street  or  interurban  railroads 

ExDreas  companv 

Same  as  for  railroads 

Same  as  for  railroads 

Local  assessment  of  tangible  and  intangible  property 
located  in  State. 

Same  as  for  railroads 

Electric  light  or  power  companies, 
water  works,  gas  or  heating  com- 
pany or  similar  public  utility. 

Transferring  baggage  or  passengers. 
t 

■i 


315 


TO  THE  METHODS  OF  TAXING  PUBLIC  UTILITIES 

ON  TAXATION  AND  RETRENCHMENT 

Reference  Section,  New  York  State  Library 
October,  1921 


Capital  stock  tax 


Domestic  company,  based  on 
authorized  capital  stock 
Foreign  company  based  on 
capital  employed  in  the 
State.  Rate  60  cents  per 
$1,000.  Apportioned, 

two-thirds  to  the  State, 
one-third  to  the  counties 


Earnings  tax 


Same  as  for  railroads. 


Same  as  for  railroads. 


Same  as  for  railroads. 


Same  as  for  railroads. 


Same  aa  for  railroads. 


See  license  tax . 


Licenses  and  miscellaneous 


Local  license  taxes  are  imposed 


For  license,  privilege  and  franchise  taxes  the  man  of 
$8,000  is  to  be  paid  annually  to  the  State.  Same  to 
be  in  full  satisfaction  for  taxes  upon  the  buaneas, 
property  and  intangible  assets  of  car  company.  No 
car  company  paying  such  taxes  shall  be  required  to 
pay  more  than  $10  to  any  municipality  authorised 
by  law  to  collect  license  tax  of  such  company. 

Annual  license  tax  for  company  operating  between 
points  wholly  within  the  Slate  is  based  on  mileage  of 
telegraph  lines  within  State  as  follows;  $1  per  mile 
for  lines  not  exceeding  150  miles:  $500  when  Imea 
exceed  150  miles  and  ll  for  each  additional  mile  of 
such  line.  State  license  tax  exempts  company  from 
county  privilege  tax.  A  municipal  privilege  tax 
based  on  population  of  the  cities  may  be  levied. 

License  tax* —  Each  person,  firm  or  corporation  operat- 
ing a  local  telephone  exchange  or  exchanges,  shall  pay 
annually  to  the  State  a  privilege  tax  based  on  the 
mileage  of  telephone  lines  operated  within  the  State 
as  follows:  25  cents  per  mile  when  lines  do  not  exceed 
50  miles;  50  cents  a  mile  when  lines  do  not  exceed 
150  miles;  $1  per  mile  when  lines  do  not  exceed  250 
miles;  $2  per  mile  when  lines  exceed  250  miles  and 
also  $1,030.  Each  person,  firm  or  corporation  ope- 
rating long  distance  telephone  line  or  system  shall 
pay  annually  to  the  State  $2  per  mile  for  each  line  as 
operated.  No  other  privilege  tax  except  license 
required  by  cities  and  towns.  Privilege  tax  allowed 
in  cities  and  towns. 

License  tax,  two  mills  on  each  dollar  of  gross  receipts 
for  preceding  year  to  be  paid  to  the  State.    Mini- 
mum for  first  two  years  of  business,  $100  per  annum 
Maximum  license    tax  municii^lities  may  assess 
annually  is  2  per  cent  of  gross  receipts  of  business. 

License  tax,  $4,000  to  be  paid  annually  to  the  State. 
Exceptions:  $250  to  be  paid  if  company  operates  on 
less  than  50  miles  of  railroad:  $500  if  company  oper- 
ates on  more  than  50  miles  and  less  than  200  miles  of 
railroad:  $2,500  if  on  more  than  200  miles  and  not 
over  500  miles.  Privilege  tax  based  on  populatioa 
may  be  levied  by  cities  and  towns. 

License  tax.— Same  as  for  street  railway. 


License  tax. —  Each  person,  firm  and  corporation  en- 
gaged in  business  of  transferring  passengers  or  bag- 
gage to  and  from  dwellings  or  hotels  in  cities  of  5,000 
or  more  population,  or  to  and  from  railrcwd  depots, 
docks,  wharves  or  boat  landings  operating  more  than 
three  vehicles  shall  pay  annual  license  of  $50. 


316 


Digest  of  the  Laws  op  the  Various  States  Relative 


STATE 


Alabftuia  —  Ccntinued. 


Public  utility  corporation 


Freight  companies. 


AriMOMk 

General  Taxation  ajid  Rier- 
ta)x»«  Laws,  1918,  pp  85,  90-91, 
»4-9€.  99,  101-102  (See  also 
nctt  en  last  page  00.) 


Private  oar  lines. 


*rkanf3ig  . .         

Acta,  1911,' No.  251: 
No.  153:.  1&15.  No.  224. 


1913. 


I 


Refrigerated  air,  dockage,  cranage, 
toll  road,  railroad  equipment, 
navigation,  canal,  freight  or  pas- 
senger depots,  or  other  public 
service  or  public  utility  corpora- 
tion 


Ad  valorem  tax 


Same  as  for  railroads. 


Railroads,  telegraph  and 
companies 


telephone  Assessments  of  all  operative  property,  including  fran- 
chise, are  made  by  State  Tax  Commiasioa  upon 
entire  railroad  within  St«te.  Valuation  apportioned 
to  local  districts  for  local  tax  levies. 


Tax  to  be  levied  on  full  cash  value  of  property  within 
State  at  a  rate  which  shtU  equal  average  rate  of  levy 
for  all  purposes  in  the  several  taxing  districts  of  the 
State  for  the  current  year.  Said  tax  to  be  in  lieu  of 
all  other  taxes  except  annual  license  tax,  the  tnnual 
registration  fee  payable  to  the  State  corporation 
commission. 


Express  companies. 
Railroads 


Express  companies. 


Car  company,  car  trust,  mercantile 
company,  freight  line  company 
other  than  railroad  company,  or 
individual  owning  such  cars. 

Telegraph  companies 


Telephone  companies . 


Pipe  lines. 


State  Tax  Commission  assetses  all  property,  tangible  and 
intangible,  including  the  franchise  (except  the  ri?ht 
to  be  a  corporation),  railroad  tracks,  rolling  stock, 
passenger  and  freight  depots,  office  furniture,  other 
property  real  and  personal  owned  by  each  railroad 
or  railway  corporation  of  this  State.  Main  track 
and  rolling  stock  apportioned  between  several  towns 
and  districts  through  which  railroad  runs  according 
to  actual  mileage  in  each.  Buildings  and  aide  tracks 
assessed  as  real  estate  in  incorporated  town  where 
located.  Materials  and  stores  assessed  as  personal 
property  in  town  or  district  where  located.  All  other 
personal  property  except  rolling  stock  and  materials 
and  real  estate  other  than  used  for  raiU-oad  purposes 
assessed  in  county  where  situated. 

State  Tax  Commissioners  value  of  property  in  State 
by  taking  the  same  proportion  of  aggregate  value  of 
entire  property,  tangible  and  intangible  within  and 
without  State,  as  the  number  of  miles  of  railway 
in  this  State  over  which  such  company  carries  on 
its  business  bears  to  the  aggregate  number  of  miles 
within  and  without  State  over  which  company 
carries  on  business.  Basis  for  apportioning  value 
to  counties,  towns  and  districts  jjiall  be  the  value 
per  mile  in  the  State. 

An  average  assessment  valuation  is  put  upon  the  cars 
required  to  make  the  total  mileage  of  such  cara  within 
the  State  during  one  year.  Same  taxes  are  levied 
as  upon  other  property. 

Property  assessed,  same  as  for  express  companiw. 
Taxable  value  of  property  within  State,  is  found  by 
taking  a  proportionate  amount  of  value  of  entire 
property.  Basis  of  apportionment,  same  as  for 
express  companies. 

State  Tax  Commission  assesses  property  on  basis  of 
proportion  of  pole  miles  and  stations  within  State  to 
total  pole  miles  and  station.s  of  system.  Appor- 
tioned to  local  districts  on  same  basis. 

State  Tax  Commission  assesses  all  property  including 
office  fixtures,  teams,  wagons  and  other  apparatus. 
Taxable  value  in  this  State  is  found  by  taking  same 
proportion  of  aggregate  value  of  entire  property 
within  and  without  State  as  the  number  of  miles  iQ 
the  State  bears  to  total  number  of  miles.  Appor- 
tionment same  as  for  express  companies. 


i»^ 


>v\ 


317 


to  the  Methods  of  Taxing  Public  Utilities  —  (Continued) 


Capital  stock  tax 


Earnings  tax 


> 


Same  as  for  railroads . 


Same  as  for  railroads. 


See  license  tax . 


Licenses  and  miscellaneous 


Franchise  tax  in  proportion 
of  paidup  capital  employed 
in  tke  State.  Rate  1/15 
of  1  per  cent. 


Same  as  for  railroads. 


0  per  cent  of  the  gross  receipts  to  be 
paid  in  lieu  of  all  other  taxes  upou 
properties  of  such  company. 


State  Tax  Commission  shall  assess  annually  to  ^icS 
freight  or  equipment  company  a  privilege  tsx  or 
license  of  3  per  cent  on  the  gross  amount  of  incooie 
from  all  sources  within  the  State  reported  by  ejcU 
freight  line  or  equipment  company. 


Same  as  for  railroads. 


Same  as  for  railroads. 


Same  as  for  railroads. 


Same  ae  fcr  railroads. 


Privil^e  tax  of  5  per  cent  of  grcss 
receipts. 


Specific  tax  for  car  trusts,  $100  aaauaUy. 


318 


Digest  op  the  Laws  of  the  Various  States  Relating 


STATE 


Public  utility  corporation 


Arkansas — Contin  ued . 


California 

Constitution,  1910,  Art. 
XIII,  §  14;  Session  Laws,  1921, 
ch.  22. 


Power,  heating,  electric,  gas,  water, 
street  car,  toll  roads,  toll  bridge, 
interurban  and  other  similar  com- 
pany or  corporation  known  as  a 
utility  corporation. 

Railroad  companies  including  street 
r^Iways,  sleeping  car,  drawing- 
room  car,  palace  car  companies: 
refrigerator,  oil,  stock,  fruit,  and 
other  car  companies:  express  com- 
panies doing  business  on  railroad, 
steamboat  vessel  or  stage  line  in 
this  State:  telegraph  and  telephone 
companies,  companies  engaged  in 
transmission  of  gas  or  electricity. 

Corporations  maintaining  wharves, 
ferries,  toll  roads,  toll  bridges: 
constructing,  maintaining  and  op- 
erating mains,  pipes,  canals, 
ditches,  tanks,  conduits  or  other 
means  for  conducting  water,  oil,  or 
other  Bubstance. 


Colorado 

Revised  Statutes,  1908,  §§ 
6630,  5642,  5644,  5647-5650, 
6653,  5G56-5667.  Session 
laws,  1913,  ch.  133. 


Connecticut 

General  Statutes  Revision, 
1918.  ch.  72. 

Public  Acts.  1919.  ch.  128. 
249. 


Revised  Code,  1915,  pp.  37, 
39-49,  65-66,  71-72. 


Water  companies. 


Express,  telephone,  telegraph, 
sleeping  car,  car  line,  raUroad, 
power,  pipe  line,  water,  street 
railway,  gas,  lighting,  heating 
companies.  Also  companies  how 
ever  owned  or  operated  and  having 
a  continuity  of  business  in  two  or 
more  counties  in  the  State. 

Railroads:  water,  gas,  electric  and 
power  companies,  express,  tele- 
phone, telegraph,  cables  and  car 
companies. 


Carriers   of   passengers    by   steam 
power,  railroads  and  canal  com 
panics. 


Telegraph  companies. 


Ad  valorem  tax 


State  Tax  Commission  assesses  property. 


Constitution  reserves  to  the  State  the  right,  in  the  case 
of  a  deficiency  in  State  revenue,  to  collect  an  ad 
valorem  tax  upon  all  property  in  State.  Looal 
districts  tax  non-operative  property. 


State  Tax  upon  franchise  equal  to  1  6/10  per  cent  of 
their  actual  cash  value.  All  tangible  proper^ 
subject  to  local  taxation. 


State  Tax  upon  franchise  equal  to  1  2/10  per  cent  o  f 
its  true  cash  value.  All  tangible  property  Bubjeet 
to  local  taxation. 

Assessment  for  taxation  by  State  tax  commission,  of 
all  property  excepting  non-operatve  property  of 
railroads  which  is  locally  asseaied.  Valuation  taken 
to  be  that  proportion  of  total  value  borne  by  mile- 
age within  State  to  total  mileage.  Rate  of  tax,  same 
as  on  other  property. 


Local  taxes  on  real  estate. 


Real  estate  outside  right-of-way  and  buildings  on  or 
off  right  of  way  are  taxed  locally  for  school  and  road 
purposes. 


Property  subject  and  ad  valorem  taxes  for  school  and 
road  purposes. 


319 


to  the  Methods  of  Taxing  Public  Utilities — (Continued) 


Same  as  for  railroads. 


Annual    State   license   tax 
based  on  capit.'\l  stock. 


Annual    State    license    tax 
based  on  capital  stock. 

Corporation  license  fee  based 
on  capital  stock. 


Franchise  tax  of  2}  mills  on 
capital  stock  employed  in 
State. 


Railroads,  7  per  cent  of  gross  receipts: 
street  railways,  5i  per  cent  of  gross 
receipts:  car  companies,  5i  per  cent 
of  gross  receipts:  express  companies, 
1  percent  of  gross  receipts:  telephone 
and  telegraph  companies,  5^  per  cent 
of  gross  receipts. 

Companies  engaged  in  transmission  of 
gas  or  electricity,  7i  per  cent  of  gross 
receipts. 

Note; —  If  decided  by  courts  that  legis- 
lature is  without  power  to  fix  dif 
ferent  rate  on  street  railways  than 
that  fixed  upon  railroads  then  rate 
shall  be  7  per  cent. 


Tax  on  gross  earnings  of  intrastate 
business  and  such  portion  of  gross 
earnings  of  interstate  business  as  is 
represented  by  proportion  of  mileage 
or  instruments  within  the  State  to 
total  mileage  or  instruments.  Rate; 
Steam  or  electric  railroads  other 
than  street  railways,  3i  per  cent: 
street  railways,  4J  per  cent:  water 
gas,  electric  and  power  companies, 
H  per  cent:  express  companies,  2  per 
cent:  telegraph,  cable  and  car  com 
panics,  3  per  cent:  telephone  com- 
panies, 4  per  cent;  Local  taxes  on 
real  estate  to  be  deducted  from  gross 
earnings.  These  taxes  in  lieu  of  all 
other  taxes  on  such  companies, 
including  taxes  on  stocks  and  bonds 
in  hands  of  owner. 


Gross  earnings  within  the  State.  Fran- 
chise tax  for  telegraph  corporation, 
1  per  cent  of  gross  receipts  to  be  paid 
annually. 


Taxes  of  one-half  of  one  per  cent  npon  eapHal  stock, 
10,  per  cent  on  net  earnings,  $100  per  looomotiTe 
825  for  each  passenger  car,  $10  for  each  frdght  ear 
and  truck,  and  10  cents  for  each  passenger  commuted 
for  following  sums: 

1.  Phil.,  Bait.,  Wash.,  railroad  company,  $50,000 
annually. 
Delaware  Railroad  Co.,  $25,000  amraaUy. 

3.  Baltimore  and  Phila.  Raih-oad  Co.,  $30,000  annuallj. 

"    Maryland,  Del.  &Va.  Railroad  Co.,  $500  annually. 
Del.,  Md.,  &  Va.  Railroad  Co.,  $1,500  annually. 

6.  Wilmington  &  N.  Raih-oad  Co.,  $5,000  annually. 


Annual  tax  as  follows:  60  cents  per  mile  for  longest 
wire  in  State:  30  cents  per  mile  for  next  longest  wire 
in  State:  20  cents  per  mile  for  each  and  every  other 
wire. 


320 


Digest  of  the  Laws  of  the  Various  States  Relating 


321 


to  the  Methods  of  Taxing  Public  Utilities  —  {Continued) 


STATE 


Delaware  —  Continued. 


m 


Florida 

I   Compiled   Laws,    1920,   pp 
550-552,    593,    611-619-622 


PuUic  utility  corporation 


Telephone  companies . 


Cable  corporation 

Express  company 

Steam,  gas  and  electricity 


Oil  or  pipeline  corporations . 


Parlor,  palace  or  sleeping  car  cor- 
porations. 

Railroads,  street  railroads,  sleep- 
ing and  parlor  car  companies. 


Telegraph  companies. 


V 


Telephone  companies . 


Steamboat  companies 

Electric  light  or  power  plants 

Refrigerator  and  tank  car  companies 
Express  company 


Sleeping  and  parlor  car  companies. . 


Gas  plants,  water  companies. 


Capital  stock  tax 


Ad  valorem  tax 


Same  as  for  telegraph  companies . 


Same  as  for  telegraph  com- 
panies. 


Same  as  for  telegraph  companies. . 
Same  as  for  telegraph  companies.. 

Same  as  for  telegraph  companies. 


Same  as  for  telegraph  com- 
panies. 

Same  as  for  telegraph  com- 
panies,      u^ 

I    ...        .^M  .    '9 

Same  as  for  telegraph  com- 
panies. ,^    ,^  ^ 


Same  as  for  telegraph  companies . 


Same  as  for 
.    panies. . 


telegraph  com- 


ai:; 


Earnings  tax 


Licenses  and  miscellaneous 


Same  as  for  telegraph  companies. 


Same  as  for  telegraph  companies. 


'^ame  as  for 
panies. 


telegraph  com- 


Comptroller,  attorney  general  and  State  treasurer 
assesses  property  and  the  comptroller  apportions  it 
to  the  counties-  The  county  assessor  of  taxes 
apportions  it  to  the  cities  and  towns  to  be  taxed  lika 
any  other  property. 


t!.; 


fe«' 


Same  as  for  telegraph  companies. 

Franchise  tax,  1  per  cent  of  gross 
receipts  to  be  paid  annually.  6  per 
cent  of  gross  earnings  to  be  paid 
annually  to  the  State. 

Franchise  tax,  2/5  of  1  per  centum  upon 
its  gross  receipts  each  year  and  4  per 
cent  upon  the  dividends  in  excess  of 
4  per  centum  so  declared.  Annual 
tax  of  one  mill  on  each  dollar  of  gross 
receipts  of  the  company  to  serve  as 
license  fee. 

Franchise  tax,  3/5  of  1  per  centum  of 
the  gross  receipts  each  year.  If  part 
of  its  transportation  Une  is  in  this 
State  and  part  in  another,  the  fran- 
chise tax  shall  be  at  the  aforesaid 
rates  upon  such  proportion  of  its 
gross  receipts  as  the  length  of  line  in 
this  State  bears  to  the  whole  length 
of  line. 

Franchise  tax  1^  per  cent  of  gross 
receipts  each  year. 


Annual  tax  aa  follows:  60  cents  per  mile  for  longeit 
wire  in  State;  30  cents  per  mile  for  next  longest  wire 
in  State:  20  cents  per  mile  for  each  and  every  other 
wire  in  State:  25  cents  for  each  telephonic  transmitter 
in  this  State  furnished  or  rented  to  any  person  or 
party  by  such  company. 


Annual  license  fee  1250  to  be  paid  to  State. 
Local  express  business  exempt  from  license  tax. 


Same  as  for  raibroada. 


fad 


hi 


^ 


Ml  property  assessed  locally . 


Same  as  for  telephone. 
Same  as  for  telephone. 

Same  as  for  telephone. 


Same  as  for  railroad . 


i> 


Same  as  for  telephone. 


See  license  tax. 


Tax  on  gross  earnings.— $1.50  upon 
each  -SIOO  of  gross  earnings  shall  be 
paid  annually  into  State  treasury. 


Ten  dollars  per  mile  for  each  and  everv  mile  of  railroa.i 
track  in  this  State  to  be  paid  annually.  Oae-half 
amount  is  paid  in  to  the  State  treasury  and  one-half 
distributed  to  various  counties.  This  license  tax 
in  lieu  of  all  other  State  or  county  license  taxes  on 
such  railroad  company.  City  license  taxes  author, 
ized  for  companies  whose  tracks  pass  through  it 
corporate  limits.  * 

License  tax. —  65  cents  per  mile  to  be  paid  to  the 
Comptroller.  One-half  of  sum  to  be  paid  to  the 
counties  in  proportion  to  mileage  in  such  counties 
No  other  license  tax  by  county. 

License  tax  as  follows:  10  cents  for  each  of  first  1,000 
instruments  installed;  8  cents  for  each  of  second 
1,000  instruments  installed;  6  cents  for  each  ov?r 
2,000  instruments  installed.  No  license  tax  required 
if  number  is  less  than  100.    Local  license  tax. 


License  tax  based  on  capacity  of  steamboat  is  paid 
to  county. 

License  tax,  $50  to  $100,  according  to  population  of 
city  or  town. 

License  tax,  $500,  to  be  paid  to  Sute  Comptroller. 
_No  tax  to  be  imposed  by  county  or  municipality. 

License  tax. —  2  per  cent  of  gross  receipts  from  business 
done  between  points  within  this  State  to  be  paid 
annually  to  the  Comptroller.  One-half  of  license  tax 
to  be  distributed  among  various  counties,  one-hal? 
to  be  paid  into  State  treasury.  Cities  or  towns  are 
authorized  to  impose  a  license  tax  according  to 
population. 

License  tax. —  $5,500  annual  license  tax  for  sleeping  or 
parlor  car  companies  who  operat«  cars  on  or  ov.^ 
any  railroad  within  this  State.  No  other  county  ar 
mimicipal  license-tax  required. 

Local  taxation  for  license. 


11 


i 


.1 


322 


Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


Seraion  Laws,  1919.  p.  55 
1918,    pp.    76-8.    Annotated 
Code  1914.  v.l,  p.  468, 470... 


Public  utility  corporation 


Q^opgja Railroads,  street  and  suburban  rail- 


roads, sleeping  car  companies, 
express  companies,  telephone  or 
telegraph  companies,  gas,  water, 
electric  light  or  power,  steam  heat, 
refrigerated  air,  dockage,  or  cran- 
age, toll  road,  toll  bridge,  railroad, 
equipment  and  navigation  com- 
panies 


Ad  valorem  tax 


Idaho 

Compiled  Statutes,  1910, 
pp.  906,  908-909,  912-914. 
BeeaoD  Laws,  1921,  p.  13. 


R^Iroeds,  telegraph,  telephone  and 
electric  current  transmission  lines, 
sleeping  car  and  other  car  com- 
panies. 


IIKfimn 

ComiNlatioii   of   Tax  Laws 
and  Judidsl  Decisions,  1919, 

?p.  30,  40,  50,  59,  61.  69.  71, 
3,  215,  224. 


Indiana 

Law  relating  to  the  aasess- 
ment  and  taxation  of  property, 
1919.  pp.  11-12,  39-48,  62-54, 
66,  09.  70. 115. 


Express  companies. 


Railroads.. 


Telegraph  companies. 


Express  companies,  bridges,  ferry, 
gravel  road,  gas,  plank  road, 
stage,  steamboat,  street  railway, 
transportation  companies. 

Railroads,  including  street  railroads. 


State  assessment  of  all  property  including  franchises . . 

Railroad  companies  operating  raib-oads  lying  partly 
in  this  State  and  partly  in  other  states  shall  be  taxed 
as  to  rolling  stock  and  other  personal  property,  not 
permanently  located  in  any  of  states  through  which 
they  pass  on  so  much  of  whole  value  as  is  propor- 
tional to  length  of  railroad  in  this  State.  The  value 
of  the  property  of  railroad  companies,  including- 
street,  dummy  and  electric  railrosiids  to  be  report^ 
without  dedacting  their  indebtedness. 

Non-resident  sleeping  car  companies  assessed  upon 
property  in  the  State  in  the  same  proportion  to  the 
entire  value  of  Fuch  sleeping  cars,  that  the  length 
of  lines  in  this  State  over  which  such  cars  run 
beajs  to  the  length  of  lines  of  all  railroads  over 
which  such  cars  run. 

Equipment  companies  assessed  on  average  amount  of 
equipment  of  such  company  in  this  State  during  the 
year. 

Proportion  of  franchise  taxable  in  this  State  shall  be 
the  proportion  the  car  mileage  of  such  equipment 
company  in  this  State  bears  to  the  entire  car  mileage 
of  such  company.  Rate  of  taxes  same  as  that  for 
other  property. 

Bureau  of  Budget  and  Taxation  submit  an  estimate  of 
the  values  of  the  operating  properties  to  State 
Board  of  Equalization,  State  Board  of  Ek]ua!ization 
assesses  tax.  Value  per  mile  of  railroad,  telegraph 
and  telephone  lines  is  found  by  dividing  total  value 
within  State  by  number  of  miles  within  State. 
Value  per  mile  of  electric  current  transmission  lines 
ia  found  by  dividing  total  value  in  each  county  by 
number  of  miles  in  such  county. 

Sleeping  car  companies  assessed  annually  for  that  pro- 
portion of  the  total  value  of  such  cars  which  the 
number  of  miles  of  main  track  over  which  cars  were 
used  within  the  State  bears  to  total  number  of  miles 
of  main  track  over  whicu  such  cars  were  used  every- 
wiiere. 

Assessment  of  other  car  companies  made  upon  the  total 
value  of  the  cars  required  to  make  the  total  mileage 
within  the  State  during  the  year. 

Assessment  apportioned  to  counties  and  various 
taxing  districts  on  mileage  basis.  Franchises  are 
included  in  valuation.  Non-operating  property 
assessable  by  county  assessor. 

Property  tax 


Capital  stock,  including  franchise,  rolfing  stock  and. 
"  railroad  track  "  assessed  by  State  Tax  Commission 
but  listed  and  taxed  in  counties,  towns,  villag^. 
districts  and  cities  in  proportion  that  length  of  main 
track  in  such  county,  town,  village,  district  or  city 
bears  to  whole  length  of  road  in  State.    All  personal 

[)roperty  except  "  rolling  stock  "  listed  and  assessed 
ocally.    All  real  estate,  including  buildings  other 
than  "  railroad  track  "  listed  and  assessed  locall^r. 
Capital  stock  assessed  by  State  Tax  Commission. 

Other  property  assessed  locally. 
Same  as  for  telegraph  companies 


"  Railroad  track,"  "  rolling  stock  "  assessed  at  true 
cash  value  by  State  Board  of  Tax  Commissioners. 
Same  to  be  certified  to  cotmtj'  auditors  and  distribu- 
ted by  them  in  proportion  to  the  length  of  main 
track  within  the  county,  town-ship,  city  or  town. 
Other  property  locally  assessed.  Rate  of  tax,  same 
as  for  other  property. 


^ 


323 
TO  THE  Methods  of  Taxing  Public  Utilities  —  (Cmtinited) 


Capital  stock  tax 


Franchise    tax    on    capital 
stock. 


Earnings  tax 


.* 


licenses  and  miscellanooaa 


•«•• •••« 


License  tax,  3  per  cent  upon  gross  re- 
ceipts received  in  tflis  State  to  be 
paid  annually  to  the  State  Treasurer. 

Illinois  Central  railroad  taxed  5  per 
cent  of  gross  receipts  in  addition  to 
property  tax,  providing  tnat  total 
taxes  equal  7  per  cent  of  gross  re- 
ceipts and  that  property  taxes  in 
excess  of  three-fourths  of  one  per 
cent  be  deducted  from  5  per  cent 
gross  receipts  tax. 


) 


I 


321 


Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


Indiana  —  Continued. 


Iowa 

Supplement  Code  of  Iowa, 
1913,  sees.  1305,  1330.  1330a 
1330b,  1334,  1336-1337,  1340, 
1342d-1342e,  1343,  1346d- 
1346f:  Supplement,  1915, 
§§1346m,  1346n.  1346q. 


Kansas 

Laws  relating  to  assessment 
and  taxation,  1919,  pp.  19,  21, 
24,  25,  45,  49,  50.  Session 
Laws,  1921,  ch.  200. 


Public  utility  corporation 


Navigation  companies. 


Road  and  bridge  companies,  gas 
water  and  hydraulic  companies; 
telegraph,  telephone,  express,  car 
line  and  pipe  line  companies. 


Freight  lines. 


Kntacky 

Statutes,  1915,  v.  2,  pp. 
2065-2067,  2078.  Supple- 
ment, 1918,  V.  3,  pp.  802-803 
829. 


Louisiana 

Constitution  and  Statutes, 
Wolff,  1920,  pp.  1882-1883, 
1930, 1944-1945, 2145. 


Railway  companies,  including  inter- 
urban  ra'Iway  companies,  tele- 
graph, telephone,  express  and 
electric  transmission  line  com- 
panies. 


Equipment  and  freight  companies . 


Water,  gas  works,  electric  plants . 
street  railways. 

Railroads,  telegraph,  telephone,  pipe 
line  and  electric  power  companies 


Ad  valorem  tax 


Personal  property  assessed  locally  and  taxed  as  other 
property. 


Capital  stock  and  operating  property  assessed  by  State 
Tax  Commission  and  apportioned  to  local  cUatricts 
on  basis  of  milea:re.  Non-operative  property  as- 
sessed locally.  All  taxed  at  same  rate  as  other 
property. 


Local  assessment  and  taxation  of  real  estate. 


Car  companies . 


Express  companies. 


Railroads  and  telephone  companies. 


Telegraph,  press  dispatch,  express, 
car  companies,  gas,  water,  ferry, 
bridge,  street  railway,  electric 
power,  turnpike,  or  other  public 
service  company. 

Oil  companies 


Railroads,  telegraph,  telephone,  car 
and  express  companies. 


Operative  property  assessed  by  executive  council  at 
25  per  cent  (as  other  property)  of  its  actual  value, 
and  valuation  apportioned  to  counties  on  mileage 
basis.  Non-operative  property,  grain  elevators,  and 
bridges  across  Mississippi  locally  assessed.  Rate 
of  tax  same  as  for  other  property. 

Executive  Council  shall  determine  actual  value  of 
property  within  the  State.  From  such  value  shall 
be  deducted  the  actual  value  of  cars  locally  taxed 
and  then  one-fourth  of  residue  shall  be  taxed  at 
the  average  rate  of  State  and  local  taxation. 

Locally  assessed  and  taxed  as  other  property. 


Ad  valorem  tax  on  all  property  used  in  operation  of 
railroads  assessed  by  State  Tax  Commission.  Same 
apportioned  to  the  counties,  townships,  cities  and 
districts. 


.A^ll  property  including  franchises  valued  by  the  State 
Tax  Commission.  Property  to  be  assessed  in  this 
State  shall  be  such  a  percentage  of  the  total  value  of 
all  assets  of  the  company  as  shall  equal  tne  per- 
centage whicn  the  mileage  made  by  tae  rolling  stock 
within  this  State  during  tne  year  ending  December  31 
next  preceding  is  of  the  total  mileage  of  the  rolling 
stock  in  all  the  States  and  territories  during  year. 
Tax  to  be  paid  directly  to  State  treasury. 

Jjocal  assessment  of  tangible  property.  Tax  rate  same 
as  for  other  property. 

State  Tax  Commission  assesses  tanfdble  property  and 
franchises  and  apportions  same  to  counties.  Rate  of 
tax  same  as  for  other  property. 

Franchise  assessed  in  first  class  cities  independently. 

Tangible  property  assessed  locally.  Franchise  assessed 
by  State.   Tax  rate  same  as  for  other  property. 


Property  other  than  wells  assessed  locally.    Tax  rate 
same  as  for  other  property. 


Board  of  State  Affairs  assessrs  total  value  of  property 
and  apportions  intangible  property  according  to  prin- 
cipal office  and  rolling  stock  and  other  movables  ac« 
cording  to  mileage.  Local  assessment  of  real  estat« 
for  local  taxes.  Tax  rate  same  as  for  other  property. 


325 


to  the  Methods  of  Taxing  Public  Utilities  —  {Continued) 


Capital  stock  tax 


One  per  cent  of  value  of  the 
proportion  of  capital  stock 
representing  capital  and 
property  owned  and  used 
in  State  after  value  of  real 
estate  taxed  locally  has 
been  deducted,  shall  be 
paid  to  State  as  excise  tax. 


Earnings  tax 


Licenses  and  miscellaneous 


Tax  on  tonnage;  3  cents  per  net  ton  of  the  registered 
tonnage  of  all  vessels  owned  by  company  to  be 
paid  to  State  annually.  Tax  on  tonnage  s&all.'be 
m  lieu  of  other  taxation,  except  that  on  personal 
property  which  property  is  assessed  to  such  com- 
panies as  other  personal  property  taxed. 


License  tax  on  capital  stock 
graded  according  to 
amount  of  stock  employed 
in  State. 

Same  as  for  railroad. 


Same  as  for  railroads. 


Excise  tax,  4  per  cent  of  the  amount 
fixed  by  Tax  Commission  as  gross 
receipts  of  company  to  be  paid  to 
the  State  auditor. 


See  license  tax . 


License  tax  is  imposed  in  cities  and  towns. 


Annual  tax  for  State  purposes,  1  per  cent  of  market 

value  of  all  crude  petroleum  produced. 
County  may  impose  tax  of  J  per  cent  of  market  value 

of  crude  petroleum  produced  in  county,    .\bove  ia 

lieu  of  all  other  taxes  on  wells. 

State  and  local  license  taxes  based  on  gross  receipts. 


326 


Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


Maine 

Bevised    Statutes  1916,1  pp. 
311-217:  laws  1917.  p.  208. 


Maryland 

Tax  Laws,  1919,  pp.  7-11, 
14-15,  52,  60-61,  69-70,  77- 
78,  81, 89-91. 


PuUio  utility  corporation 


Railroads. 


Street  railroad  corporations . 


Parlor  car  corporations. 


Telephone  and  telegraph  corporft- 
tions. 


Ezi^ess  companies. 


Railroad  compani^. 


Ad  valorem  tax 


Land  and  buildings  outside  right  of  way  and  buildings 
within  right  of  way  subject  to  local  assessment  and 
taxation. 


> 


Same  as  for  railroads . 


Real Mtate  locally  assessed  and  taxed. 


Same  as  for  telephone. 


327 
TO  THE  Methods  of  Taxing  Public  Utilities  —  (Continued) 


Capital  stock  tax 


Real  and  personal  property  taxed  locally.  Rolling  stock 
assessed  in  district  that  is  legal  situs  of  same. 


Licenses  and  miscellaneous 


Excise  tax  paid  annually  to  the  State 
as  follows:  1.  When  average  gross 
receipts  per  mile  do  not  exceed 
$1,5J0,  tax  shall  equal  one-half  of  1 
per  cent  of  gross  transportation 
receipts.  2.  When  such  receipts 
e.tceed  $1,5)0  but  do  not  exceed 
$1,9  J  J,  three-quarters  of  1  per  cent 
of  gross  receipts.  3.  So  on  increasing 
rate  one-quarter  of  1  per  cent  for  every 
additional  $400  of  receipts.  Limit  5^ 
per  cent,  for  freight  lines  3  per  cent. 
State  to  apportion  and  pay  to  the 
several  cities  and  towns  in  which  is 
held  railroad  stock  of  such  company, 
1  per  cent  on  value  of  such  stock  pro- 
vided such  sum  does  not  exceed  sum 
received  by  State.  Above  tax  is  in 
lieu  of  all  other  State  taxes. 


Same  as  for  railroads  except  when  gross 
average  receipts  per  mile  do  not 
exceed  $1,000,  tax  shall  be  one- 
quarter  of  1  per  cent  on  gross  trans- 
portation receipts,  one-quarter  of  1 
per  cent  being  added  for  each  addi- 
tional $1,000  or  fraction  thereof. 


Excise  tax  paid  annually  to  the  State 
9  per  cent  of  gross  receipts  from 
business  done  wholly  in  State.  Same 
in  place  of  all  other  taxes. 


Excise  tax  paid  annually  to  State  in  lieu 
of  all  other  State  taxes:  1.  li  per 
cent  of  gross  receipts  when  such 
receipts  exceed  $1,000  but  do  not 
exceed  $5,000.  2.  IJ  per  cent  of 
gross  receipts  when  same  exceed 
$5,000  but  not  $10,000.  3.  If  per 
cent  when  over  $10,000  but  not  over  I 
$20,000.  4.  2  per  cent  when  over 
$20,000  but  not  over  $40,000.  5.  So 
on,  increasing  one-quarter  of  1  per 
cent  for  each  additional  $20,000  up 
to  6  per  cent. 

License  tax  paid  annually  to  State. 
4  per  cent  of  gross  receipts  for  all 
business  done  in  this  State  including 
a  proportional  part  of  express  busi- 
ness coming  into  State  and  going  out 
to  other  States.  In  lieu  of  all  other 
State  taxes. 


.\  franchise  tax  is  levied  on  gross 
receipts  as  follows:  Ij  per  cent  on 
$l,'j JO  per  mile  of  gross  receipts,  or 
on  total  earnings  of  less  than  $l,0OO 
per  mile.  2  per  cent  on  gross  earn- 
ings above  SI, 000  per  mile  and  under 
$2,000  per  mile.  2^  per  cent  on  all 
earnings  above  S2,000  per  mile. 

Above  ta.\  in  lieu  of  any  State  or  local 
tax  on  shares  or  any  State  tax  on  real 
or  personal  property. 

if  part  of  road  is  in  this  State  and  part 
in  another,  such  railroad  company 
shall  pay  on  such  proportion  of  gross 
earnings  as  length  of  line  in  this  State 
bears  to  whole  length  of  line. 


328 


^^^^^'T  OF  THE  Laws  of  the  Various  States  Relating 


STATE 


Marjland  —  Continued, 


Public  utility  corporation 


Telegraph,  cable,  express  or  trans- 
portation, parlor  car  and  sleeping 
car  company. 

Telephone  and  oil  pipe  line  company 

Electric  light  companies 


Ad  valorem  tax 


Electric  construction  and  gas  com- 
panies. 

Street  and  passenger  railways,  steam- 
ship, steamboat,  turnpike,  bridge 
and  sewerage  disposal,  heating, 
refrigerating,  water  and  gas  com- 
panies. 


Capital  stock  assessed  by  State  Tax  Commission. 

Utber  property  locally  assessed.  Tax  rate  same  as  for 

other  property. 
Same  as  for  telegraph 

Same  as  for  telegraph 


Same  as  for  telegraph. 
Same  as  for  telegraph. 


Freight  line  companies. 


Massachusetts Railroads. 

Laws  relating  to  taxation, 
1{*18,  pp.  22-23.  103-104,  11^ 
122,  124-125,  135.  140-141: 
■Session  Laws,  1918,  Ch.  138, 
253,  255,  1919  ch.  349,  §21, 
1920.  ch.  600. 


Street  railways  and  electric  railroads 


State  Tax  Commissioner  assesses  intangible  values. 
Tax  on  same  equal  to  average  aiitmal  property  tax 
rate  for  three  years  preceding,  but  not  to  exceed  tax 
at  said  rate  on  amount  20  per  cent  in  excess  of  value 
of  real  and  personal  property  if  owned  by  individuals, 
buch  part  of  tax  paid  on  account  of  shares  of  stock 
owned  by  nonresidents  of  Massachusetts  shall  be 
retained  by  State;  remainder  distributed  to  cities  and 
towns  m  proportion  to  total  assessed  value  of  prop- 
erty actually  taxed  in  each  city  and  town  for  preced- 
ing year.  Local  taxes  on  tangible  property  locally 
assessed.  Minimum  taxes  to  equal  1-10  of  I'p^r  cent 
of  market  value  of  capital  stock. 

Sameasforrailroadsexceptinregardtoapportionment. 
lax  apportioned  among  cities  and  towns  in  prapor- 
tion  to  length  of  track  in  said  cities  and  towiu. 


Telegraph . 
Telephone . 


Same  as  for  railroads. 


In  ca.se  of  domestic  telephone  company  the  a  aount 
and  market  value  of  all  stock  in  other  corporatons 
neld  by  It  upon  which  a  tax  has  been  been  paid  in 
this  Mate  or  other  States  for  the  twelve  months  last 
preceding  tae  return,  is  deducted  from  cash  value 
of  all  ot  capital  stock.  In  case  of  both  domestic 
and  foreign  telephone  company  so  much  of  it.-^  capital 
stock  as  IS  proportional  to  the  number  of  telephones 
ownecl  or  controlled  by  it  without  the  State  is  also  de- 
ducted. Rate  same  as  for  railroads.  Naiue  of 
works,  structures,  real  estate,  machinery,  poles 
underground  conduits,  wires  and  pipes,  subject  to 
local  assessment  and  taxation. 


329 


to  the  Methods  of  Taxing  Public  Utilities  —  {Continued) 


STATE 


Income  tax  same  as  for  rail- 
roads. 

Income  tax  same  as  for  rail- 
roads. 


'-4i_ 


Public  utility  corporation 


Franchise  or  State  tax,  2^  per  cent  on 
gross  receipts. 

Franchise  or  State  tax,  2  per  cent  of 
annual  gross  receipts. 

Franchise  or  State  tax,  1  per  cent  of 
annual  gross  receipts. 

Franchise  or  State  tax,  1 J  per  cent  of 
annual  gross  receipts. 


Two  per  cent  on  gross  earnings  of 
business  within  the  State  is  levied  in 
lieu  of  all  taxes  upon  property  of 
freight  company. 

Income  tax  f  of  1  per  cent  of  the  net 
income  as  returned  to  Federal  gov- 
ernment for  preceding  year.  Appor 
tioued  to  the  State. 


Ad  valorem  tax 


Telegraph  and  express  companies  pay  State !: . 
of  $300  per  annum. 


t»x 


Income  tax  same  as  for  railroads. 

Commutation  tax   or  excise  tax  an 
amount  equal  to  such  proportion  of 
following     percentages     of     gross 
receipts,  as  length  of  tracks  in  city  or 
town     bears    to     total    length   of 
tracks.       Percentages   based   upon 
annual  gross  receipts  iat  each  mile  of 
track  as  follows  and  computed  upon 
aggregate    of    said    annual    gross 
receipts:    $4,000  or  less,  1  per  cent; 
over  $4,000  and  less  than  $7,000,  2 
per  cent:  over  $7,000  and  less  than 
$14,000,  2i  per  cent:  over  $14,000 
and  less  than  $21,000,  2 J  per  cent: 
over  $21,000  and  less  than  $28,000 
2|  per  cent:  $28,000  or  more  3  per 
cent.    Commutation  tax  not  to  be 
imposed  1920  and  1921. 


Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


Public  utility  corporation 


Massachusetts  —  Continued 


Michigan 

Compiled  Laws  1915,  v.  1,  p. 
1504,  1.507:  Public  Acts  1917, 
CL  339;  Public  Acts  1921; 
Senat€  enrolled  act  No.  27; 
Hwise  enrolled  act  No.  228. 


Gas,  electric  light,  gaa  and  electric, 
and  water  companies. 


Ships  and  vessels. 


.\d  valorem  tax 


Railroads,  union  station  and  depot 
companies,  telegraph  and  tele- 
phone. 


Sleeping  car  companies. 


Express  companies. 


1^^ 


Minnesota 

General  Statutes,  1913,  pp. 
2S0,  422,  424,  600-506;  Laws, 
191*'.  pp.  678-679;  Laws  1921, 
p.  6.50.  ' 


Car  loaning,  stock  car,  refrigerator, 
fast  freight  line  and  other  car 
companies. 


Gas,  electric  light,  waterworks  and 
hydraulic  companies. 

Street  raikoad,  plank  road,  cable  or 
electric  railroad  or  transportation 
companies  and  bridge  companies. 


Railroad  compames. 


Same  as  for  railroads  except  apportionment.  Portion 
of  tax  paid  on  shares  owned  by  non-residents  of 
State  is  retained  by  State.  Remainder  paid  to  city 
or  town  where  located  or  if  business  is  carried 
on  in  several  cities  and  towns  said  remainder  is 
distributed  to  them  in  proportion  to  the  value  of 
works,  structures,  real  estate,  machinery,  poles, 
underground  conduits,  wires  and  pipes.  Works, 
real  estate,  etc.,  taxed  locally. 

Tax  Commissioner  assesses  annually  every  corporation 
organized  under  laws  of  State  and  having  place  of 
business  therein  which  has  interest  in  any  ship  or 
vessel.    Tax  to  be  1  per  cent  of  value  of  such  mterest 

All  real  and  personal  property  used  in  canying  on 
their  business  assessed  by  State  Tax  Commission. 
Value  of  property  based  on  statements  filed  by 
corporation.  Franchise  not  assessed  directly  but 
considered  in  determining  value  of  property.  Rate 
same  as  for  other  property  assessed  for  ad  valorem 
tax.  In  obtaining  true  cash  value  of  property  to  be 
a^ssed  in  State,  the  proportion  which  number  of 
miles  of  main  track  within  the  State  bears  to  the 
entire  mileage  of  main  track  is  considered.  Real 
estate  not  occupied  in  service  of  franchise  ot  operated 
in  conduct  of  business  taxed  locally.  Property  of 
telegraph  or  telepjone  companies  whose  gross 
receipts  within  State  for  year  ending  December  31, 
do  not  exceed  4^500  shall  be  exempt  from  taxation. 

Total  value  of  palace  cars,  drawinp-room  cars,  sleeping 
cars,  and  tourist  cars  to  be  taken  as  aggregate  value 
of  personal  property.  This  amount  is  multiplied 
by  number  of  miles  of  railroad  main  track  over 
which  such  cars  were  used  within  the  State.  The 
amount  thus  obtained  is  divided  by  the  number  of 
miles  of  raibood  track  over  which  such  cars  are 
used  both  within  and  without  the  State.  Result 
is  true  cash  value  of  personal  property  to  be  assessed 
and  taxed  like  personal  property-  of  other  companies 
assessed  by  State  Board  of  .Assessors.  Non-operative 
real  estate  assessed  locally. 

Same  as  for  railroads.  True  cash  value  of  property 
to  be  taxed  shall  be  obtained  as  follows:  1.  Deter- 
mine actual  value  in  money  of  entire  amount  of 
capital  stock  and  bonded  indebtedness.  2.  From 
such  amount  subtract  actual  value  of  all  real  estate 
and  personal  property,  wiiica  is  not  used  in  express 
business.  3.  Divide  this  remainder  by  total  number 
of  miles  of  route  over  which  company  does  business. 
This  gives  the  value  per  mile.  4.  Multiply  value 
per  mile  by  total  number  of  miles  within  the  State 
over  which  company  does  business.  5.  To  this 
result  add  the  value  of  all  real  estate  owned  by 
company  in  State  and  the  result  shall  be  actual 
value  of  property  subject  to  assessment  and  taxation 

^  in  State.     Non-operative  real  estate  assessed  locally. 

Same  as  for  raihoads.  Relation  of  aggregate  car 
mileage  made  by  entire  number  of  cars  to  the  car 
mileage  in  State  is  considered  in  obtaining  value  of 
property  to  be  taxed.  Non-operative  real  estate 
assessed  locally. 

Local  assessment  of  property.  Rate  of  tax  same  as 
for  other  property. 

Same  as  for  gas  companies. 


I 


331 


to  the  Methods  of  Taxing  Public  Utilities  —  (Continued) 


Capital  stock  tax 


Income  tax  came  as  for  rail 
roads. 


1/ 


M  ** 


Annual  state  iiri\ilege  fee  of 
3^  mills  on  capital  stock. 


Privilege  fee  05  mills  on  each 
dollar  of  paid  up  capital 
and  surplus  to  be  paid 
annually  to  Secretary  of 
State  when  report  is  filed. 
Such  fee  not  to  be  less  than 
150  nor  more  than  S  10,000. 


Earnings  tax 


Licenses  and  miscellaneous 


Same  as  for  sleeping  car  com- 
panies. 


Same  as  for  sleeping  car  com- 
panies. 


Same  at  for  sleeping  car  com- 
panies. 


Five  per  cent  of  gross  earnings  in  lieu 
of  all  taxes  upon  property  owned 
and  operated  for  rulway  porposes. 
Apportioned  to  taxing  district  ac- 
cording to  proportion  of  business 
contributed  by  district. 


332 


Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


Public  utility  corporation 


Minnesota  —  Contiuurd 


Express  companies. 


Gas,  electric,  water,  street  railways, 

etc. 
Vessels    navigating    international 

waters. 


Freight  line  companies . 
Sleeping  car  companies. 


Ad  valorem  tax 


333 


to  the  Methods  of  Taxing  Public  Utilities  —  {Continued) 


Capital  stock  tax 


Local  assessment  of  property, 
for  other  property. 


Rate  of  tax  same  as 


Telegraph  companies Rate  fixed  by  State  Board  of  Equalization  on  cash 

value  of  lines.  Rate  must  not  exceed  avwa?e  rat© 
of  taxes,  general,  municipal  and  local.  Such  tax  in 
lieu  of  ^1  other  taxes,  State  and  local. 


Telephone  companies . 


Mississippi Raihoads. 

Code,  1917,  V.  2,  pp.  28S6- 
2892,  Laws  1918,  pp.  143-146; 
Laws  1920,  pp.  109-110,  112. 
118-119, 123-126. 


Express. 


Sleeping  car  company,  etc . 


Freight  line  companies  and  equip- 
ment companies. 
Street  railways , 


Telephone. 


Missouri 

Revi-ed  Statutes,  1919,  v.  3, 
pp.    3310,    3015-3016.     4060- 
4068,  4077-4078.  4079.  4094 
Laws,  1921,  pp.  173, 679;  Extra 
Session  Laws,  Aug.,  1921. 


Montana 

Laws,  1977,  pp.  120-121, 
143-145,  Laws,  1919,  pp.  105, 
108-111:  Session  Laws,  1921, 
pp.  20-21, 186-190,  214-215. 


w 


Telegraph 

Gas  companies 

Electric  light 

Waterworks  company. 


Tax  Commission  assesses  property  at  its  true  value, 
taking  into  consideration  value  of  franchise  as  well 
as  capital  stock.  Apportioned  to  counties  and  other 
tax  districts  according  to  property  located  therein. 
Rate  of  tax  same  as  for  other  property.  Also 
special  levee  taxes. 

Same  as  railroads 


Same  as  railroads. 


Local  assessment .  Rate  of  tax  same  as  for  otiier  property 
Same  as  raikoad 


Raihoads,     street     railways,     car, 
telephone  and  telegraph  companies 


Elxpress  companies. 


Gas,  water  and  other  public  utilities 
Railroads , 


Same  as  raih>oad , 

Same  as  street  railways. 
Same  as  street  railways . 
Same  as  street  railways. 


Commissioner  of  Budget  and  State  Board  of  Equali- 
zation shall  assess  operative  property.  Non- 
operative  property  assessed  locally.  Rate  of  tax 
same  as  for  other  property.  Board  apportions  to 
counties,  towns  and  cities  value  on  a  mileage  basis. 
Franchises  other  than  right  to  be  corporation 
taxable. 

Real  and  personal  property  including  franchise  subject 
to  taxation  as  if  owned  by  private  persons. 

.Assessed  and  taxed  locally  as  other  property 

Franchise,  roadbed,  rail  and  roUing  stoek  and  all  other 
property  except  as  given  under  local  tax,  to  be 
assessed  by  State  Board  of  Equalization  and  appor- 
tioned to  counties  on  mileage  basis. 

Lots  and  parcels  of  real  estate,  not  included  in  right  of 
way,  with  buildings,  structures  and  improvements 
thereon,  dams  and  power  houses,  depots,  stations, 
furoiture,  machinery  and  other  personal  property 
assessed  in  coimty  where  located.  Railroads  oper- 
ated or  situated  in  one  county  and  not  assessed  by 
State  Board  of  Equalisation  must  be  listed  and 
assessed  in  county  where  situated. 

Rate  same  as  for  property  of  individuals. 


1^ 


Earnings  tax 


Licenses  and  miscellaneous 


Eight  per  cent  of  gross  earnings  after 
deducting  amount  paid  to  railroads 
for  carrying  their  freight.  In  lieu 
of  all  other  taxes. 


Annual  franchise  tax  equal  to 
one-twentieth  of  1  per  cent 
of  the  par  value  of  its 
capital  stock  and  surplus 
employed  in  business  in  the 
State. 


Six  per  cent  on  gross  earnings  in  lieu 

of  other  taxes. 
Five  per  cent  of  gross  earnings  in  lieu 

of  other  taxes. 


Four  per  cent  of  gross  earnings  in  lieu 
of  other  taxes. 


Pays  3  cents  per  net  ton  of  registered  tonnage  to 
State  Treasurer  who  pays  one-half  of  it  to  county 
in  which  port  of  hail  of  craft  is  located. 


Pay  to  State  Treasurer  3  per  cent  of 
gross  earnings  in  lieu  of  other  taxes 


Income  tax  equal  to  1  per  cent  of  net 
income  of  corporations. 


8ame  as  railroads. 


Company  paj^B  tax  of  S2.50  on  each 
$100  of  gross  receipts  to  State. 


Railroads  pay  pri\ilege  tax  to  State  auditor  amounting 
from  $2.50  to  $45  per  mile  according  to  classilication 
of  railroad.    Local  license  taxes. 


Express  company  pays  privilege  tax  to  State  auditor 
amounting  to  $500,  and  $6  per  mile  on  Ist  class 
railroad  tracks  o\er  which  business  is  operated. 
$3  per  mile  for  2d  and  3d  class  railroad  tracks. 

Sleeping  car  companies  pay  pri\ilege  tax  to  State 
auditor  of  $3.50  per  mile  of  1st  clas;;  railroad  over 
which  company  runs  its  cars,  $2.50  over  2d  and  3d 
class  railroads.  Dining  car  companies  pay  to 
auditor  $150. 


Street  car  company  pays  to  county,  pri\ilege  tax  of 

$30  per  mile  of  line  operated. 
Pays  privilege  tax  to  county  tax  collector  varjing  from 

$5  to  S750  according  to  number  of  suWribers. 

Long  distance  companies  pay  35  cents  per  mile  of 

pole  line. 
Pays  to  State  Auditor  35  cents  per  mile  of  pole  line. 

Pay  privilege  tax  to  county  of  $50  to  $400  according 

to  population  of  town. 
Privilege  tax  of  $50  to  $500  to  county  according  to 

population  of  town. 
Pays  $50  to  $500  privilege  tax  according  to  population 

of  town. 

Annual  registration  fee  required  from  corporations 
varying  from  $5  to  $15  according  to  time  paid. 
Paid  to  State. 


Same  as  railroads 

License  tax  of  1  per  cent  on  intrastate 
net  income. 


Pays  annual  registration  fee. 


Same  as  railroads. 


<: 


1^^ 


STATE 


334 


Digest  op  the  Laws  of  the  Various  States  Relating 


Public  utility  corporation 


Montaoa  —  Continued 


Nebraska 

Revenue  Statutes,  1913,  pp 
26^71,11168,  1376,  1756- 
1777, 2046-47:  Laws,  1917,  pp. 
191-92,  Chapter  117:  Laws, 
1021,  Senate  File  65. 


Nevada 

Statutes,  1917,  chapter  177, 
section  5.  (See  also  note  at 
end.) 


New  Hampshire 

Session  Laws,  1911,  ch.  169 
statutes  relating  to  taxation, 
1914,  p.  98:  statutes  relating  to 
taxation,  1919,  pp.  9.  13,  25: 
Session  Laws,  1919,  p.  169. 


J  '  '  ' 


f 


Telegraph  and  telephone,  electric 
power  and  transmission  lines, 
ditches,  canals  and  Humes. 


Freight  line  companies . 


Express  companies . 
Railroads 


Car  companies . 


Sleeping  car  companies. 


Express  companies. 


Telephone  and  telegraph  companies 

Street  railways,  water  works,  electric 
light,  and  gas  works,  etc. 

Railroads,  sleeping-car,  private  car 
line,  street  railway,  traction,  tele- 
graph, water,  telephone,  electric 
light  and  power  companies,  express 
companies. 


Rulroads. 


Pole  lines  and  rights  of  way  and  all  other  property 
except  that  subject  to  local  taxation  assessed  by 
State  Board  of  Equalization.  Value  for  taxation  of 
property  to  be  assessed  shall  be  that  portion  of  total 
value  of  entire  plant  and  property  wherever  situated 
that  total  mileage  in  the  State  bears  to  total  mileage 
wherever  situated,  after  deducting  from  such  portion 
value  of  proprty  assessed  locally.  Assessment  ap- 
portioned to  counties  on  mileage  basis.  Property 
locally  assessed  same  as  for  railroads,  electric  light 
lines  and  similar  property  situated  in  one  county, 
listed  and  assessed  in  that  county.  Rate  same  as 
for  property  of  indi\-iduals. 


Local  assessment.  Rate  of  tax  same  as  for  other 
property. 

State  Board  of  Equalization  and  .Assessment  assesses 
all  property  including  franchise  except  local  property 
off  the  right  of  way.  Real  estate  apportioned  to 
local  districts  according  to  status.  Rolling  stock  and 
intangible  values  according  to  mileage.  Rate  same 
as  for  other  property. 

State  Board  of  Equalization  and  Assessment  assesses 
and  levies  tax  on  car  companies.  Rate  i%  equal  to 
average  of  all  general  ta.xes.  State,  local  and  school. 
Tax  paid  into  general  fund. 

State  Board  of  Equalization  and  Assessment  assesses 
portion  of  true  value  of  cars  used  which  the  number 
of  miles  of  railroad  track  over  which  cars  were  used 
bears  to  total  number  of  miles  of  track  used  every- 
where.   -Apportioned  to  counties  as  railroads. 

Local  assessment  as  any  other  property.  Gross  re- 
ceipts considered  an  item  in  valuation  and  represent 
franchise  value  which  is  not  otherwise  assessed. 


Same  as  for  express  companies . 


County  assessment. 
property. 


Rate  of  tax  same  as  for  other 


Tax  Commission  establishes  value  of  franchise  and  all 
physical  property  used  directly  in  operation  of  busi- 
ness, as  a  collective  unit,  if  company  operates  in 
more  than  one  county,  the  commission  determines 
the  total  aggregate  mileage  operated  within  the  State 
and  within  the  several  counties  and  apportions  same 
upon  a  mile  unit  valuation  basis  and  the  number  of 
miles  so  apportioned  is  subject  to  the  mile  unit 
valuation  established  by  the  commission.  Other 
property  assessed  locally.  Rate  of  tax  same  as  for 
other  property. 

Tax  Commission  to  determine  actual  ^-alue  of  all  prop- 
erty used  in  its  business.  When  only  portion  of 
property  is  in  State,  commission  shall  make  propor- 
tional valuation  c<?nsidering  total  trackage  wherever 
situate.  Rate  to  be  average  rate  of  ta.xation  upon 
other  property  throughout  State  at  that  time.  Tax 
to  be  assessed  annually  and  paid  to  State.  Railroad 
tax  not  apportioned  to  towns  but  distributed  as 
follows: 

1.  One-quarter  to  towns  in  which  any  railroad  is 
located,  each  town  receiving  its  share  according  to 
share  of  capital  expended  in  town  for  buildings  and 
right  of  way. 

2.  Such  proportion  of  residue  to  each  town  in  which 
shares  are  owned  as  number  of  shares  owned  bears 
to  whole  number  of  shares. 

3.  Remainder  kept  by  State. 

Real  estate  not  used  in  business  taxed  locally. 


335 


TO  THE  Methods  of  Taxing  Public  Utilities  —  (Continued) 


Capital  stock  tax 


« 


Earnings  tax 


Same  as  for  railroads. 


Licenses  and  miscellaneous 


All  corporations  pay  annual] 
occupation  tax  varying 
from  S5  to  $2,500  accord- 
ing to  the  amount  of  paid 
up  capital  stock. 


Same  as  for  railroads. 


Same  as  for  railroads. 


Tax  of  5  per  cent  on  gross  earnings 
within  the  State.  License  tax  of 
1  per  cent  on  intrastate  net  income 

License  tax  of  4  per  cent  on  gross  re- 
ceipts within  the  State. 


Same  as  for  railroads. 
Same  as  for  railroads. 


Occupation  tax  to  State  equal  to  2  per 
cent  of  gross  earnings  within  State. 


Local  occupation  taxes  in  some  places. 


336 


Digest  of  the  Laws  of  the  Various  States  Relatixq 


STATE 


New  Hampshire  —  Continued 


Public  utility  corpOTation 


Telegraph 
tions. 


and  telephone  corpora- 


Ad  valorem  tax 


New  Jersey 

Tax  La  we,  1918,  pp.  160-216, 
217-222,  253-258,  Session 
Laws,  1919,  ch.  25:  Session 
Laws,  1920,  p.  340. 


Electric  power  or  light  corporations, 
water  supply  and  street  railways, 
except  municipal  corporations. 

Railroad  and  canal  companies 


Parlor,  sleeping  or  dining  car  cor- 
poration. 


Express  companies. 


Street  railway,  traction,  gas  and 
electric  light,  heat  and  power  com 
panies  using  or  occupying  public 
streets,  highways,  road  or  other 
public  places. 


Same  as  for  railroads,  except  in  the  proportionate  valu- 
ation, the  porportion  of  total  length  of  lines  within 
the  State  to  the  total  length  of  line  wherever  situate 
is  considered.  Buildings  used  for  office  purposes 
and  as  central  stations  taxed  locally. 


Same  as  for  railroads  except  in  estimating  the  propor- 
tionate valuation  the  proportion  of  the  total  number 
of  car  miles  or  the  number  of  miles  traversed  by  its 
cars  taken  singly,  within  the  State,  during  preceding 
year,  to  the  total  number  of  such  car  miles  during 
same  period  both  within  and  without  State  is 
considered. 


Same  as  for  railroads  except  in  the  proportionate  valu- 
ation the  proportion  of  the  whole  length  of  lines  of 
rail  and  water  routes  over  which  company  did  busi- 
ness within  State  during  preceding  year  to  the  whole 
length  of  such  lines  both  within  and  without  State 
during  same  time. 


Local  assessment  of  property, 
other  property. 


Rate  of  tax  same  as  for 


State  Board  of  Taxes  and  Assessment  determine  value 
of  all  property  including  franchises  except  property 
owned  by  such  companies  but  not  used  in  operation 
of  business.  Property  is  then  assessed  and  appor- 
tioned as  follows: 

1.  First  and  fourth  class  property  (main  stem,  tangible 
personalty  and  franchises)  is  assessed  by  State 
Board  of  Taxes  and  Assessments.  First  class  prop- 
erty taxedat  iate  prevailing  in  current  year;  fourth 
classat  "averagerate"  oftheState.  Taxis  paidto 
State  Treasurer.  One-half  of  one  per  cent  of  valu- 
ation assessed  is  retained  by  State.  The  increase 
due  to  road  tax  is  paid  into  State  road  fund.  Re- 
mainder is  apportioned  to  counties  for  public  schools. 

2.  Second  class  property  (real  estate  outside  of  main 
stem  used  for  railroad  or  canal  business)  is  assessed 
by  State  Board  of  Taxes  and  Assessments  and  taxed 
at  rates  of  current  year  in  taxing  districts  where 
property  is  situate.  Tax  is  paid  to  State  treasurer 
and  returned  by  him  to  county  collectors  for  trans- 
mittal to  taxing  districts.  Third  class  property 
(property  owned  by  railroads  and  canals  but  not 
used  in  operation  of  business)  assessed  and  taxed 
locally. 


Land  and  buildings  assessed  and  taxed  locally 


337 


TO  THE  Methods  of  Taxing  Public  Utilities  —  {Continued) 


Capital  stock  tax 


Earnings  tax 


License-!  and  misdellTneous 


fV 


\ 


#  f  S 


*(* 


Franchise  tax  of  5  per  cent  of  gross 
receipts  each  year  is  assessed  by 
State  board  of  taxes  and  assessment 
and  appOTtioned  to  taxing  districts 
according  to  value  of  property  in 
streets.  Paid  directly  to  local  col 
lectors  for  local  use.  Tax  upon  gross 
receipts  from  their  business  in  the 
State  at  "  average  rate  of  taxation  " 
of  State  is  in  lieu  of  all  State,  county, 
school  and  local  taxation  of  all  per- 
sonal property,  and  of  all  railways, 
tracks,  rails,  ties,  lines,  wires,  cables, 
poles,  pipes,  conduits,  bridges,  via- 
ducts, machinery,  apparatus  and 
equipment,  except  road  and  tunnel 
taxes.  Same  is  apportioned  to  tax- 
ing districts  in  proportion  to  value 
of  property  therein.  This  tax  is  in 
addition  to  franchise  tax. 


Il' 


336 


Digest  of  the  Laws  of  the  Various  States  Relatixq 


STATE 


New  HampsLire  —  Continued 


New  Jersey 

Tax  Laws,  1918,  pp.  160-216, 
217-222,  253-258,  Session 
Laws,  1919,  ch.  25:  Session 
Laws,  1920,  p.  340. 


Public  utility  corporation 


Ad  valorem  tax 


Telegraph  and  telephone  corpora- 
tions. 


Parlor,  sleeping  or  dining  car  cor- 
poration. 


Express  companies. 


Electric  power  or  light  corporations, 
water  supply  and  street  railways, 
except  municipal  corporations. 


Railroad  and  canal  companies. 


Same  as  for  railroads,  except  in  the  proportionate  valu- 
ation, the  porportion  of  total  length  of  lines  within 
the  State  to  the  total  length  of  line  wherever  situate 
is  considered.  Buildings  used  for  office  purposes 
and  as  central  stations  taxed  locally. 


Same  as  for  railroads  except  in  estimating  the  propor- 
tionate valuation  the  proportion  of  the  total  number 
of  car  miles  or  the  number  of  miles  traversed  by  its 
cars  taken  singly,  within  the  State,  during  preceding 
year,  to  the  total  number  of  such  car  miles  during 
same  period  both  within  and  without  State  is 
considered. 


Same  as  for  railroads  except  in  the  proportionate  valu- 
ation the  proportion  of  the  whole  length  of  lines  of 
rail  and  water  routes  over  which  company  did  busi- 
ness within  State  during  preceding  year  ta  the  whole 
length  of  such  lines  both  within  and  without  State 
during  same  time. 


Local  assessment  of  property, 
other  property. 


Rate  of  tax  same  as  for 


State  Board  of  Taxes  and  Assessment  determine  value 
of  all  property  including  franchises  except  property 
owned  by  such  companies  but  not  used  in  operation 
of  business.  Property  is  then  assessed  and  appor- 
tioned as  follows: 

1.  First  and  fourth  class  property  (main  stem,  tangible 
personalty  and  franchises)  is  assessed  by  State 
Board  of  Taxes  and  Assessments.  First  class  prop- 
erty taxed  at  iate  prevailing  in  current  year;  fourth 
class  at  "  average  rate  "  of  the  State.  Taxis  paid  to 
State  Treasurer.  One-half  of  one  per  cent  of  valu- 
ation assessed  is  retained  by  State.  The  increase 
due  to  road  tax  is  paid  into  State  road  fund.  Re- 
mainder is  apportioned  to  counties  for  public  schools. 

2.  Second  class  property  (real  estate  outside  of  main 
stem  used  for  railroad  or  canal  business)  is  assessed 
by  State  Board  of  Taxes  and  Assessments  and  taxed 
at  rates  of  current  year  in  taxing  districts  where 
property  is  situate.  Tax  is  paid  to  State  treasurer 
and  returned  by  him  to  county  collectors  for  trans- 
mittal to  taxing  districts.  Third  class  property 
(property  owned  by  railroads  and  canals  but  not 
used  in  operation  of  business)  assessed  and  taxed 
locally. 


Street  railway,  traction,  gas  and 
electric  light,  heat  and  power  com- 
panies using  or  occupying  public 
streets,  highways,  road  or  other 
public  places. 


Land  and  buildings  assessed  and  taxed  locally . 


337 

TO  THE  Methods  of  Taxing  Public  Utilities  —  {Continued) 


9     4 


Capital  stock  tax 


License-;  and  misdellTneous 


S  V 


A       > 


) 


»       4 


^    J 


Franchise  tax  of  5  per  cent  of  gross 
receipts  each  year  is  assessed  by 
State  board  of  taxes  and  assessment 
and  apportioned  to  taxing  districts 
according  to  value  of  property  in 
streets.  Paid  directly  to  local  col- 
lectors for  local  use.  Tax  upon  gross 
receipts  from  their  business  in  the 
State  at  "  average  rate  of  taxation  " 
of  State  is  in  lieu  of  all  State,  county, 
school  and  local  taxation  of  all  per- 
sonal property,  and  of  all  railways, 
tracks,  rails,  ties,  lines,  wires,  cables, 
poles,  pipes,  conduits,  bridges,  via- 
ducts, machinery,  apparatus  and 
equipment,  except  road  and  tvmnel 
taxes.  Same  is  apportioned  to  tax- 
ing districts  in  proportion  to  value 
of  property  therein.  This  tax  is  in 
addition  to  franchise  tax. 


338 


Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


New  Jersey  —  Continued. 


New  Maxico 

Laws,  1921,  ch.  133,  §  502- 
503,  ch.  137, 178. 


Public  utility  corporation 


Express,  parlor,  palace  and  sleeping 
car  companies. 

Corporations  other  than  those  listed 
above  using  or  occupying  public 
streets. 


Ad  valorem  tax 


Railroads,      telegraph,      telephone 
and  transmission  companies. 


Express  companies . 


New  Yoifc 

Tax  Law,  1920.  §§  2.  3.  4a, 
11, 12, 45, 45e,  182-186, 205. 


Private  car  companies. 


Local  assessment  and  taxation  of  properly 
Real  and  personal  property  taxed  locally  . . . 


State  Tax  Commission  determines  value  of  all  property 
by  taking  value  of  property  determined  by  Interstate 
Commerce  Commission  or  other  Federal  authority 
and  adding  to  it  additions  and  betterments  and  value 
of  rolling  stock  within  State  with  reasonable  and 
permanent  percentage  of  increase  in  such  tentative 
valuation.  Value  of  rolling  stock  determined  by 
dividing  actual  value  of  each  locomotive,  car  or  other 
unit  by  actual  number  of  days  in  preceding  year  and 
multiplying  result  by  actual  number  of  days  such 
locomotive,  car  or  unit  was  upon  line  within  State. 
Value  of  rolling  stock  is  allocated  to  main  and  branch 
lines  in  State  in  proportion  to  use  upon  such  lines. 
Value  of  property  including  allocated  value  of  rolling 
stock  in  various  counties  is  certified  to  respective 
local  assessors.    Tax  levied  as  upon  other  property. 

All  property  within  county  not  used  in  operation  of  line 
taxed  locally  as  other  property. 

Real  estate  and  improvements  assessed  locally  and 
taxed  as  other  property. 


Steam  railroads,  sleeping  car,  tele- 
graph, telephone,  canal,  steam- 
bo0it,  ferry,  navigation  companies 
and  pipe  lines. 


State  Tax  Commission  assesses  all  personal  property 
other  than  rolling  stock,  located  im  State,  and  used 
in  business,  and  a  proportion  of  rolling  stock  used  in 
trips  in,  into,  out  of  or  through  State.  Proportion 
of  rolling  stock  assessed  to  be  such  proportion  of  full 
value  of  the  average  number  of  cars  used  in  trips  in 
State  during  preceding  year  as  the  aggregate  number 
of  car  miles  traveled  by  such  cars  in  State  during 
year  bears  to  the  whole  number  of  car  miles  traveled 
by  such  cars  in  State  dJUri°S  year.  Tax  rate  to  be 
average  rate  of  taxation  of  State.  Tax  Commission 
certifies  actual  value  of  real  estates  located  in  re- 
spective counties  to  the  county  assessors. 

Tax  Commission  annually  determines  full  and  actual 
valuation  of  "  special  franchise  "  subject  to  assess- 
ment in  each  city,  town  or  village  and  also  equalises 
valuation  of  same .  Other  tangible  property  assessed 
locally.  All  subject  to  local  taxation  at  same  rate  as 
other  property. 


330 


to  the  Methods  of  Taxing  Public  Utilities  —  (Continyed) 


Capital  stock  tax 


Earnings  tax 


<  \ 


Annual  franchise  tax  of  2  per  cent  of 
I    gross  receipts  in  the  State  to  be  paid 

to  the  State. 
Annual  franchise  tax  of  5  per  cent  of 
gross  receipts  is  assessed  by  State 
b(»rd  of  taxes  and  assessment  and 
apportioned  by  them  to  taxing  dis- 
tricts according  to  value  of  property 
in  or  on  streets.  Same  paid  direct 
to  local  collectors  for  local  uses.  If 
business  is  carried  on  partly  in  this 
State  and  partly  in  other  States  tax 
is  upon  such  proportion  of  gross  re- 
ceipts as  length  of  lines,  wires  or 
mains  in  State  bears  to  total  length 
of  lines,  wires  or  mains.  If  gross  re- 
ceipts do  not  exceed  $50,000  assess 
ment  shall  be  2  per  cent  of  gross  re 
ceipts  per  annum. 


Franchise  tax  on  capital 
stock  at  the  rate  oi  $10 
per  $100,000. 


Same  as  for  railroads. 


State  Tax  Commission  determines 
gross  receipts  of  company  basing 
their  estimate  upon  statements  filed 
by  such  company. 

Five  per  cent  of  gross  receipts  paid  to 
the  State  in  lieu  of  all  other  taxes 
upon  properties  except  real  estate 
and  improvements. 


Same  as  for  railroads. 


Annual  franchise  tax  paid  to 
State  treasurer  is  based 
upon  capital  stock  of  com- 
pany. Measure  of  capital 
stock  in  State  is  such  por- 
tion of  issued  capital  stoqk 
as  gross  assets  employed 
in  business  in  State  bear 
to  gross  assets  wherever 
employed     in     business. 

Rate  of  tax  varies  with  rate 
of  dividends. 


Annual  franchise  tax  J  of  1  per  cent  of 
gross  earnings  within  State  which 
shall  include  gross  earnings  from 
transportation  business  originating 
and  terminating  in  State. 


Licenses  and  miscellaneous 


340 


Digest  of  the  Laws  of  the  Various  States  Relatixq 


STATE 


Public  utility  corporation 


Kew  York  —  Continued. 


North  Carolina 

Session  Laws,  1921,  pp. 
164,  205,  254-267. 


188- 


Street  railroads. 


Private  car  companies 

Express,  transfer,  baggage  express. 

Water,  gas,  electric  light,  power  and 
heating  companies. 


Raibroads,  canal  and  steamboat  com- 
panies . 


TangiUe  property  assessed  locally  and  taxed  as  other 
property. 
Special  franchise  "  tax.   Same  as  for  railroads. . . . 


Express  companies . 


Ad  valorem  tax 


Same  as  for  railroads . 


Telegraph  companies. 


Commissioner  of  Revenue  assesses  value  of  tangible 
and  intangible  property  within  State.  In 
assessing  value  of  franchise  gross  earnings  as 
compared  with  operating  expenses,  and  value  of  in- 
tangible property  are  considered. 

The  aggregate  value  of  tangible  property  and  the 
franchise  shall  be  true  value  for  ad  valorem  tax. 
Same  is  apportioned  by  State  tax  commission  to 
counties,  cities  and  towns  on  mileage  basis.  Tax 
due  State  paid  directly  to  State.  Privilege  tax  shall 
be  one  tenth  of  one  per  cent  of  value  of  property, 
tangible  and  intangible.  No  county,  city  or  town 
allowed  to  collect  franchise  tax.  Machine  and  re- 
pair shops,  general  office  buildings,  store-houses  and 
contents  located  outside  of  right  of  way,  real  and 
personal  property  other  than  property  as  returned 
tu  Tax  Commission,  are  listed  and  assessed  locally. 

State  Tax  Commission  ascertain  true  cash  value  of 
entire  property  of  company.  From  this  is  deducted 
value  of  real  estate  in  State  not  specially  used  in 
business.  Commission  after  deducting  the  assessed 
value  of  such  real  estate  outside  of  State  from  entire 
value,  assesses  such  proportion  of  value  of  property 
which  length  of  lines  or  routesin  State  bears  to  entire 
length  over  which  business  is  done.  From  aggregate 
value  in  State  value  of  property  taxed  locally  is 
subtracted.  From  this  commission  ascertains  value 
per  mile  and  determines  value  of  assessment  in  each 
county.    Tax  due  State  is  paid  directly  to  State. 

Real  estate,  structures,  machinery,  fixtures  and  ap- 
pliances taxed  locally. 

Tax  Commission  assesses  part  of  aggregate  value 
which  length  of  lines  within  State  bears  to  total 
length.  Apportions  value  to  counties  on  wire 
mileage  basis.    State  tax  paid  directly  to  State. 

Structures,  machinery,  appliances,  pole  lines,  wire  and 
conduits  assessed  by  commission  but  taxed  locally. 
Land  and  buildings  assessed  and  taxed  as  if  owned 
by  individuals. 


Telephone  companies Same  as  for  telegraph  companies 


341 


TO  THE  Methods  of  Taxixg  Public  Utilities  —  (Continued) 


Capital  stock  tax 


Same  as  for'railroads. 

••a  -  ■<  -4  s^  i        ! 

Same  as  for  railroads. 


Earnings  tax 


Licenses  and  miscellaneous 


inual  franchise  tax  for  elevated  rail- 
roads and  surface  railroads  not 
operated  by  steam  to  be  paid  State 
shall  be  1  per  cent  of  gross  earnings 
from  all  sources  within  State  and  3 
per  cent  upon  amount  dividends 
declared  or  paid  in  excess  of  4  per 
cent  upon  actual  amount  of  paid- 
up  capital. 
Same  as  for  railroads. 


.\nnual  franchise  tax  to  be  paid  to  State 
shall  be  i  of  1  per  cent  on  gross  earn- 
ings from  all  sources  within  State 
and  3  per  cent  upon  amount  of  divi- 
dends declared  in  excess  of  4  per  cent 
upon  actualpaid-up capital. 

Income  tax  —  3  per  cent  of  net  income 
paid  iUiBually  m  franchise  tax. 


Income  tax  same  as  for  railroads. 


Income  tax  same  as  for  railroads. 


Income  tax  same  as  for  railroads. 

Three  per  cent  of  gross  receipts  of  tele- 
I^ooe  company  within  the  State 
Investment  of  assets  in  bonds  of 
State,  county,  city  or  town  of  State, 
or  of  property  in  State  and  taxable 
therein  may  reduce  tax  as  follows: 

1.  If  at  least  one-quarter  of  assets  are 
80  inrested,  tax  shall  be  2\  per  cent. 

2.  If  one-half  of  total  assets,  2  per  cent. 

3.  If  three^uarters  of  total  assets 
per  cent. 


Annual  State  license  tax  varying  from  .<5  to  $7  p>r  mii# 
aooordiag  to  raie  of  earnings,  municipal  liceiis^  tax-?a 
varying  from  $5  to  $75,  according  to  popuhtioa  )i 
city. 


Annual  state  license  tax  of  $5  per  mile  for  each  p>)l; 
mile  of  telegraph  line  owned  or  operated  within  Stat^. 
Town  licenses  varying  with  population  from  flD  to 
150. 


i 


342 
Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


Public  utility  corporation 


North  Carolina  —  Continued. . 


Chair  and  sleeping  car  companies. 


Ad  valorem  tax 


Same  as  for  express  companies . 


Refrigerator  and  freight  car  com- 
panies. 

Street  railway,  water  companies, 
electric  light  and  power,  gas,  ferry, 
bridge,  canal  and  other  corpora- 
tions, exercising  right  of  eminent 
domain. 


Same  as  for  express  companies. 


North  Dakota. 

Compiled  Laws,  1913.  S§ 
2075,  2097,  2114,  2144,  2146, 
2242-2262.  1915  — ch.  93: 
Session  Laws,  1919,  ch.  124, 
220,  222,  224.  Special  Session 
Laws,  1919:  ch.  59. 


Railroads  including  street  railways . 


Same  as  for  express  companies . 


State  board  of  equalixation  assesses  real  estate  and 
tangible  personal  property  used  in  operating  busi- 
ness. Valuations  are  fixed  separately  on  franchises, 
roadway,  roadbed,  rails  and  rolling  stock  on  each 
mainline,  branch  line  and  siding.  Valuations  are  ap- 
portioned to  several  counties  on  a  mileage  basis. 
County  auditor  apportions  to  local  taxing  districts. 
Real  and  personal  property  not  used  in  operating 
business  assessed  locally.  Rate  of  tax  same  as  for 
othea  property. 


Express,  freight  line  and  equipment, 
sleeping  car,  dining-car,  telegraph 
and  telephone  companies. 


Ohio 

Tax  Laws,  1920,  ch.  17-22. 


Franchise  and  all  property  within  State  assessed  at 
actual  value  by  State  board  of  equalization.  Valua- 
tion of  property  per  mile  determined  by  said  board 
and  apportioned  to  various  counties  according  to 
number  of  miles  of  line  in  such  county,  county 
auditors  apportion  same  to  several  taxing  districts. 
Valuation  so  apportioned  to  unorganized  counties 
taxed  for  State  purposes  only.  Real  and  personal 
property  not  used  in  operating  business  assessed 
locally.    Rate  of  tax  same  as  for  other  property. 


Water,  gas,  heat,  light  and  power 
companies. 


Freight  line  and  car  equipment  com- 
panies. 


Steam  railroads. 


Street,    suburban    and    intcrurban 
railroads. 


All  property  assessed  locally. 


343 


to  the  Methods  of  Taxing  Public  Utilities  —  (Continued) 


Capital  stock  tax 


> 


All  personal  property  and  all  real  estate  necessary  to 
operation  of  road,  valued  by  State  Tax  Commission 
and  apportioned  on  a  mileage  basis  to  various  taxing 
districts  for  taxation.  Valuation  based  on  state- 
ments made  by  companies.  In  case  of  interstate 
business  valuation  of  property  in  State  is  such  pro- 
portion of  total  valuation  as  length  of  line  in  State 
bears  to  total  length  of  line.  Non-operative  real 
estate  ass^sed  locally.  Rate  of  tax  same  as  for 
other  property. 


I» 


Same  as  for  steam  railroads. 


Franchise  fee  —  one-tenth  of 
one  per  cent  of  its  sub- 
scribed or  issued  and  out- 
standing stock  which  fee 
shall  not  be  less  than  $10. 
Fee  to  be  paid  State  treas- 
urer. No  county,  city  or 
town  has  power  to  levy 
franchise  tax.  This  fee  in 
addition  to  initial  fee 
otherwise  required  by  law 

Annual  excise  tax,  50  cents 
per  $1,000  of  fair  average 
value  of  capital  stock  for 
previous  year  above  legal 
exemption  of  $10,000.  In 
case  of  interstate  roads 
valuation  of  entire  capital 
stock  and  bonds  is  appor- 
tioned to  N.  D.  on  ratio  of 
gross  earnings  in  State  to 
total  gross  earnings,  or 
value  of  property  in  State 
to  total  value  of  operating 
property  of  system.  This 
ratio  of  property  shall 
mean  ratio  of  mileage 
within  State  to  total  mil 
age. 

Same  as  for  railroads 


Earnings  tax 


Same  as  for  railroads. 


Income  tax  as  fcr  raiircads 

Three  per  cent  of  gross  earnings  for 

preceding  year  to  be  paid  State  as 

annual  license  fee. 

Income  tax  —  same  as  for  railroads. 


Income  tax  —  same  as  for  railroads. 


Income  tax,  3  per  cent  of  net  earnings 
within  the  State.  In  case  of  inter 
state  roads  net  earnings  are  ap- 
portioned to  State  on  basis  of  ratio 
of  gross  earnings  in  State  to  total 
gross  earnings  or  value  of  property 
in  State  to  total  value  of  operating 
property  of  system.  This  ratio  of 
property  shall  mean  ratio  of  mileage 
in  State  to  total  mileage. 


Income  tax  same  as  for  railroads. 


Same  as  for  railroads. 


Six  per  cent  gross  earnings  from  busi 
ness  within  State  to  be  paid  to  State 
in  lieu  of  all  other  taxes  upon  prop- 
erty used  in  operation  of  their  lines 
within  State. 

Four  per  cent  of  gross  earnings  on  intra 
state  business  paid  to  State  as  excise 
tax.  Such  tax  to  be  not  less  than 
110.  For  maintenance  of  Public 
Utilities  Commission,  $75,000  shall 
be  apportioned  among  and  assessed 
upon  railroads  and  public  utilities  in 
proportion  to  their  intra-state  gross 
earnings  or  receipts. 


Twelve-tenths  per  cent  of  gross  earn- 
ings to  be  paid  State  as  excise  tax  for 
intra-state  business.  Said  tax  shall 
not  be  less  than  SIO.  .Additional  tax 
for  maintenance  of  Public  Utilities 
Commission  same  as  for  railroads. 


Licenses  and  miscellaneoxis 


t 


II 


i\ 


344 


Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


Ohio  —  Continued. 


Oklahoma 

Revised  Laws,  1910,  v.  2,  §§ 
7336-7338,  745^7461,  7470- 
7479:  revised  laws,  supplement 
1918,  §§  7488a,  7488d,  7488g, 
74S8i-j,.7549w,  7549y,  7549x2. 


Public  utility  corporation 


Ad  valorem  tax 


Express. 


Telegraph . 
Telephone. 


Electric  light,  gas,  natural  gas,  water- 
works messenger  or  signal,  union 
depot,  heating,  cooling  and  water 
transportation. 

Sleeping  car,  freight  line  and  equip- 
ment companies. 


I^peline. 


Steam  railroads. 


Tax  Commission  values  and  assesses  entire  property 
in  the  State,  but  deducts  from  total  value  in  State, 
the  value,  as  assessed  for  taxation  of  any  real  estate 
within  State.  Tax  Commission  apportions  value 
of  property  to  various  counties  in  which  company 
does  business  in  the  proportion  that  gross  receipts 
in  county  bear  to  entire  gross  receipts  in  State.  Real 
estate  asse^ed  locally.  Rate  of  tax  same  as  for 
other  property. 

Property  valued  and  assessed  same  as  for  express  com- 
panies but  apportioned  to  counties  in  proportion 
that  length  of  lines  of  wire  in  county  bears  to  length 
of  lines  of  wire  in  State. 

Same  as  for  telegraph 


Local  assessment, 
property. 


Rate  of  tax  same  as  for  other 


Local  assessment  of  real  estate, 
for  other  property. 


Rate  of  tax  same  as 


Express  companies. 


Transportation  and  transmission 
lines,  excepting  railroads,  street 
railways,  car  companies,  pipe  Iinc$ 
and  telephone  companies. 

Sleeping  car,  stock  car,  refrigerator 
car  and  other  private  car  compa- 
nies, pipe  line,  telephone,  gas, 
electric  light,  heat,  and  power 
companies. 


Raih-oads  are  classified  according  to  proportion  that 
operating  expenses  bear  to  gross  receipts.  Every 
railroad  according  to  it«  classification  pays  tax  upon 
value  of  property  and  franchise.  Valuation,  amount 
of  business  done  in  State  and  mileage  of  each  railroad 
is  determined  by  State  board  of  equalization.  State 
auditor  certifies  same  to  county  clerks.  Tax  paid  to 
the  State  in  lieu  of  all  other  State  taxes  shall  be  equal 
to  a  percentage  of  its  valuation  according  to  the  class 
to  which  railroad  belongs.  Local  tax  at  same  rate 
as  tax  on  other  property. 

State  Board  of  Equalization  values  and  assesses  prop- 
erty and  a^ets.  Asseasment  shall  be  proportion  of 
property  and  assets  that  mileage  of  express  company 
in  State  bears  to  total  mileage  of  such  company. 
Assessment  apportioned  to  counties  on  a  mileage 
baus.  Tax  lened  same  as  upon  other  property. 
Same  to  be  in  lieu  of  all  other  taxes  in  this  State. 


Real  and  personal  property  assessed  annually  by  State 
Board  of  Equalization  and  taxed  for  State  and  local 
purposes  same  as  property  of  individuals.  Assess- 
ment based  on  statements  made  by  companies. 


Street  railways Same  aa  for  sleeping  car  companies 


345 


TO  THE  Methods  of  Taxing  Public  Utilities  —  (Continued) 


9    « 


Capital  stock  tax 


Tax  Commission  to  deter- 
mine value  of  proportion  of 
capital  stock  owned  and 
used  in  State.  Twelve- 
tenths  per  cent  of  such 
capital  stock  to  be  paid  to 
State  as  excise  tax. 


Earnings  tax 


Two  per  cent  of  gross  receipts  on  intra- 
state business.  Tax  to  be  not  less 
than  SIO.  Additional  tax  for  main- 
tenance of  Public  Utilities  Commis- 
sion same  as  for  railroads. 


Same  as  for  express  companies. 


Twelve-tenths  per  cent  of  gross  earn- 
ings on  intra-state  busiaess,  but  tax 
not  to  be  lees  than  SIO.  Additional 
tax  for  maintenance  of  Public  Utili- 
ties Commission  same  as  for  rail 
roads. 

Same  as  for  telephone. 


Four  per  cent  of  gross  receipts  on  intra- 
state business  to  be  paid  State  as 
e.xcise  tax.  Same  to  be  not  less  than 
$10.  Additional  tax  for  maintenance 
of  Public  I.  tilities  Commission  same 
as  for  railroads. 


V 


State  auditor  ascertains  annual  gross 
receipts  of  company  in  or  across 
State.  Four  per  cent  of  such  gross 
receipts  to  be  in  lieu  of  all  other  taxes 

Tax  on  gross  receipts  to  be  paid  an- 
nually to  State  if  company  operates 
wholly  within  State;  if  operating 
partly  within  and  partly  without 
State,  such  proportion  of  said  per 
centage  of  gross  receipts  as  portion 
of  business  done  within  State  bears 
to  whole  business.  Rate  3  per  cent 
for  car  companies;  2  per  cent  for  pipe 
lines;  one-half  of  1  per  cent  for  tele- 
phone, gas,  electric  light,  heat  and 
power  companies;  one-quarter  of 
per  cent  for  water  works. 


J 


Licenses  and  miscellaneous 


I  mm  1 1  ■  ■ 


346 

Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


Oregon 

I4tw8  relating  to  assessment 
and  taxation,  1919,  §§  3614, 
3617-3626, 3635, 3641. 


Public  utility  corporation 


Railroad,  sleeping  car,  union  station 
and  depot,  electric  and  street  rail- 
way, express,  telegraph,  telephone, 
refrigerator  car,  tank  line  and 
private  car  companies,  water,  gas, 
and  electric  companies. 


Ad  valorem  tax 


All  property  used  in  carrying  on  business  of  the  com- 
pany including  franchises  and  special  franchises 
valued  and  assessed  at  true  cash  value  by  State  Tax 
Comnussion.  In  assessment  of  companies  using  rail 
lines,  Tax  Commission  ascertains  value  per  mile  of 
branch  and  main  lines  within  State.  In  apportioning 
same  to  counties,  the  value  per  mile  is  multiplied  by 
number  of  miles  within  several  counties.  In  case  of 
wire  or  pipe  lines.  Tax  Commission  determines  a 
reasonable  and  fair  rate  per  mile  and  in  apportioning 
same  multiplies  rate  per  mile  by  number  of  miles  of 
wire  or  pipe  lines.  In  case  of  other  public  utilities 
Tax  Commission  adopts  method  for  apportionment 
that  seems  feasible  and  proper.  After  apportion- 
ment. Tax  Commission  equalises  all  property  aseessed 
by  counties  and  that  assessed  by  Tax  Commission. 
Property  not  used  in  operation  of  business  taxed 
locally.  Docks,  water  craft  and  property  devoted 
to  navigation,  assessed  and  taxed  locally. 


Pennsylvania 

Purdon's  Digest,  v.  4,  pp. 
4565-4571,  v.  7,  pp.  7621, 7624, 
Laws  1919,  ch.  433. 


Ruboad,  pipe  line,  conduit,  steam 
boat,  canal,  slack  water  naviga 
tion,       transportation,       street 
passenger  railway,  telephone,  tele- 
graph, palace  car,  sleeping  car, 
and  electric  light  companies. 

Express  companies 


Real  estate  assessed  aid  taxed  locally. 


Same  as  for  railroads. 


ir- 


^ 


■|' 


Rhode  Island 

General  Laws,  1909,  p.  740- 
44,  Public  Acts  and  Resolves, 
1912,   pp. 17-24. 


Raiboads.  Sleeping  car  companies, 
gas,  water,  lighting  and  heating 
companies. 

Express  companies 


Real  estate  and  tan^ble  property  assessed  and  taxe  , 
locally,  at  same  rate  as  other  property. 

Non-operative  property  assessed  locally  and  taxed  as 
other  property. 


Telephone  and  telegraph. 


Same  as  for  express. 


South  Carolina 

Code  of  Laws,  1912,  v.  1, 
§§  305,  308,  317-320,  323-325, 
334,  361,  369,  Acts,  1915,  p. 
131. 


Street  railways Same  as  for  railroads 


Rjulroads. 


Tax  Comnussion  assesses  and  equalises  value  of 
property  and  franchises.  Value  of  right  of  way, 
roadbed  and  track  shall  be  fixed  and  apportioned  pro 
rata  to  each  mile  of  main  track.  To  value  of  each 
mile  of  main  track  in  various  taxing  districts  is 
added  value  of  real  estate  and  personal  property 
used  in  operation  of  road  in  such  district.  Total 
value  of  rolling  stock,  moneys  and  credits  is  appor- 
tioned pro  rata  to  each  mile  of  main  track  in  such 
districts  and  added  to  value  of  main  track  of  said 
district.    Rate  of  taxes  same  as  for  other  property. 


347 


TO  THE  Methods  of  Taxing  Public  Utilities  —  (Continued) 


5    1        ^    i 
Capital  stock  tax 


Capital  stock  of  corporations 
reported  to  auditor-general. 
Five  mills  on  each  dollar  of 
capital  stock  of  all  kinds  to 
be  paid  to  the  State. 

Same  as  for  railroads , 


Earnings  tax 


Eight  mills  on  each  dollar  of  gross 
receipts  from  business  done  wholly 
within  the  State  to  be  paid  semi- 
annually. Statements  made  to 
auditor-general. 

Amount  of  gross  receipts  returned  to 
State  auditor  is  divided  by  number  of 
miles  of  rail  and  water  routes  to 
ascertain  average  gross  receipts  per 
mile.  When  such  average  gross 
receipts  per  mile  shall  not  exceed 
$100,  tax  shall  be  1  per  cent  of  the 
gross  receipts.  When  average  re- 
ceipts per  mile  exceed  S150  tax  shall 
be  2  per  cent  of  gross  receipts,  and  so 
on  increasing  rate  1  per  cent  for  each 
additional  $50  of  average  receipts 
per  mile.  Rate  not  to  exceed  5  per 
cent. 

One  per  cent  of  gross  earnings  as  deter- 
mined by  tax  commissioners  in  lieu 
of  other  taxes  on  intangible  property. 

Three  per  cent  of  gross  earnings  as 
determined  by  State  Tax  Commis- 
sioners, in  lieu  of  other  taxes  on 
property  used  in  their  business. 

Two  per  cent  of  gross  earnings  as  deter 
mined  by  State  Tax  Commissioners 
in  lieu  of  other  taxes  on  property 
used  in  their  business. 

Same  as  for  railroads.  An  additional 
State  tax  of  1  per  cent  on  gross  eam- 
ings,  except  if  dividend  is  over  8 
per  cent  tax  is  equal  to  excess  of 
dividend  over  8  per  cent  but  must 
equal  1  per  cent.  No  other  State 
tax.  Certain  electric  railways  pay 
same  tax  as  railroads  instead  of 
street  railway  tax. 

Annual  license  fee  of  3  mills  on  gross 
income  to  be  paid  State  treasurer. 


Licenses  and  miscellaneoos 


Tax  on  indebtedness.  Four  mills  on  every  dollar  of 
interest  paid  on  indebtedness  of  corporation.  Same 
assessed  by  corporation  upon  nonunal  value  of  eaA 
evidence  of  indebtedness  and  paid  to  ^te. 


' 


Municipal  licenses  varying  with  size  of  city  permitted. 


348 


Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


South  Carolina—  Coniinwd... 


{Public  utility  corporation 


South  Dakota 

RtAised  Code,  1919;  v.  2,  pp. 
ISftT-ieit),  1624. 


Telegraph,  telephone,  express,  and 
sleeping  car  companies. 


Ad  valorem  tax 


Tax  Commission  ascertains  true  cash  value  of  all 
property  of  company.  From  this  is  deducted  the 
value  of  real  estate  not  used  in  regular  business. 
Then  Tax  Commission  assesses  the  value  of  property 
in  State  which  is  a  proportionate  amount  of  entire 
value.  From  this  is  deducted  assessed  value  of 
property  taxed  locally.  Remainder  is  amount 
assessed  to  company. 

Value  per  mile  within  State  is  ascertained  and  multi- 
plied by  number  of  miles  in  each  county  and  then 
apportioned  to  respective  counties.  Rate  of  tax 
same  as  for  other  property.  Real  estate,  structures, 
machinery,  fixtures  and  appliances  assessed  locally. 


Street  railways,  navigation  com- 
panies, waterworks,  power,  light 
companies. 

Railroads 


Telephone  companies. 


Tennessee 

Public  Acts,  1919,  ch.  2,  3; 
Acts.  1921,  ch.  108. 


Telegraph . 


Express  companies 

Car  companies  except  sleeping  cars 


Sleeping  Car  companies. 


Gas  and  water  companies,  street  rail- 
ways. 
Railroads 


Express  companies 

Sleeping  car  companies. 


Rate  of  tax  same  as 


Local  assessment  of  property, 
for  other  property. 

State  Tax  Commission  assesses  property  including 
franchise  value  and  apportions  same  to  counties 
according  to  property  therein.  Non-operative 
property  locally  assessed.  Rate  of  tax  same  as  for 
other  property. 

State  Tax  Commission  assesses  property  including 
franchise;  fixes  value  on  property  within  corpjrate 
limits  of  towns,  etc.  Property  within  corporate 
limits  is  subject  to  all  taxes  as  other  property. 
Property  without  corporate  limits  shall  be  subject 
to  tax  at  the  average  rate  for  all  taxes  outside  the 
corporate  limits,  and  this  tax  is  in  lieu  of  all  other 
taxes.  Both  paid  to  county  and  apportioned  to 
locality. 

State  Tax  Commission  assesses  property  and  appor- 
tions value  according  to  mileage  in  counties.  Value 
so  apportioned  is  taxed  as  other  property  in  county 
and  is  in  lieu  of  all  other  taxes.  Local  property  not 
used  in  business  assessed  and  taxed  locally. 

Same  as  for  railroads.  Apportioned  on  the  basis  of 
mileage  of  business  done  in  county. 

State  Tax  Commission  assesses  property  including 
franchise  value.  Levies  tax  equal  to  average  rate 
of  general  taxes,  State,  county,  municipal,  school 
and  local.    Paid  to  State  Treasurer. 

Tax  Commission  ascertains  total  value  of  cars  owned. 
This  multiplied  by  number  of  miles  traveled  by  cars 
in  the  State  and  divided  by  whole  number  of  miles 
traveled  any  place  is  the  cash  value  of  company 
subject  to  assessment.  Apportions  value  to  counties 
according  to  mileage  in  counties.  Value  apportioned 
subject  to  taxation  as  other  property. 

Property  assessed  locally  and  taxed  at  same  rate  as 
other  property 

Railroad  commission  values  and  assesses  property 
within  the  State  considering  capital  stock,  corporate 
property,  franchise  gross  receipts  and  market  value 
of  shares  of  stock  and  bonded  indebtedness.  Local- 
ised property  valued  separately  and  apportioned 
according  to  situs.  Other  property  apportioned 
according  to  mileage.  State  rate  of  65  ceata  on 
$100.  Provision  is  made  for  sliding  scale  when 
assessment  reaches  $900,000,000.  Rate  for  counties 
and  municipalities,  same  as  for  other  property. 


Railroad  terminal  companies 

Telegraph  companies 

Telephone  companies 


Same  as  for  railroads 
Same  as  for  railroads. 
Same  as  for  railroads. 


Same  as  for  railroads. 
Same  as  for  railroads . 


^} 


<# 


349 


to  the  Methods  of  Taxing  Public  Utilities  —  (Continued) 


Capital  stock  tax 


Earnings  tax 


4  \ 


0 


Same  as  for  railroads. 


Same  as  for  railroads. 


^ 


/ 


Licenses  and  miscellaneous 


State  Privilege  tax  —  Each  railroad  not  pajin?  a  1  val- 
orem tax  and  operating  or  controlling  railroad  in  State 
shall  pay  annually  for  each  mile  of  railroii  *> 
operated,  $120.  Tax  does  not  apply  to  railroai 
exempt  from  privilege   tax  by  le^slative  contract. 

Company  subject  to  above  tax  may  be  released  bjr 
paying  to  State  $4,500  annually  in  lieu  of  all  other 
taxes  for  10  years,  1899-1909,  and  agreeing  that 
thereafter  property  and  franchise  shall  be  liable  to 
ad  valorem  tax,  waiving  at  the  end  of  10  years  aQ 
charter  exemptions  as  to  ad  valorem  tax.  If  contract 
is  not  consummated  privilege  tax  remains  ia  force. 

State  privilege  tax  varying  with  population  of  county. 

State  privilege  tax  varying  with  number  of  miles  of 

wire. 
State  privilege  tax  varying  with  popubtion  of  county. 

20  cents  to  30  cents  for  each  instrument. 
Mutual  cooperative  telephone  companies  not  rua  for 

proSt  are  not  liable  for  this  tax. 
Telephone  bo.xes  or  slot  machines  for  collecting  t<rfl, 

each  per  annum  $3. 
State  privilege  tax  varying  with  mileage. 


State  privilege  tax  S8,000. 


;f>: 


350 


Digest  of  the  Laws  of  the  Various  States  Relating 


O.Ji 


TO  THE  Methods  of  Taxing  Public  Utilities  —  {Continued) 


STATE 


Public  utility  corporation 


Tennesee  —  Continued. 


Water  companies. 


Street  car  companies  and  interurban 
railroads. 


Railway  inclines 


Lighting,  other  than  electric  light 

and  gas  companies. 
Electric  light  companies 


Texas  

Constitution,  Art.  VIH,  §§ 
1,  9,  11.    Complete  Statutes, 
1920,  pp.  173,  223,  1274-75 
1280-93, 1299-1300, 1302. 


Ad  valorem  tax 


Capital  Stock  tax 


Earnings  tax 


Local  assessment  of  property.    Rate  of  tax  same  as 
for  other  property. 


Same  as  for  railroads. 


Power  companies. 


Local  assessment.    Rate  of  tax  same  as  for  other 

property. 
Same  as  for  railway  inclines 

All  property  considered  localized  property.  Same 
valued  and  assessed  separately  by  Railroad  Com- 
mission. Exception  of  $1,000  apportioned  to 
taxing  district  in  proportion  to  value  of  property 
assessed  in  such  district.  Rate  of  tax  same  as  for 
other  property. 

Same  as  for  railroads 


Gas  companies. 


Raihoads. 


Same  as  for  electric  light  companies. 


Ferry,    bridge,    turnpike    and    toll 

company. 
Terminal  companies 


Electric   railways   including    street 
and  interiirban. 


State  Tax  Board  determines  true  value  of  intangible 
assets  by  subtracting  value  of  all  tangible  property 
within  State.  Value  of  intangible  property  appor- 
tioned to  several  counties  for  levy  of  State  and  county 
ad  valorem  tax.  .Annual  State  tax  on  same  shall 
be  in  addition  to  other  taxes  allowed  by  law.  Rate 
determined  according  to  fixed  rules.  Real  and 
personal  property  is  listed  in  county  where  located 
except  when  same  is  in  unorganized  county  then  it  is 
listed  with  comptroller.  Value  of  rolling  stock  is 
determined  by  county  board  of  equalization  where 
principal  office  is  located  and  same  is  apportioned 
to  counties  by  State  comptroller  on  mileage  basis. 
All  property  of  railroad  companies  within  limits  of 
city  or  town  shall  bear  its  proportional  share  of 
municipal  taxation. 


Same  as  for  railroads. 

Local  assessment  of  property.    Rate  of  tax  same  as  for 

other  property. 
Same  as  for  terminal  companies 


» 


Car  companies. 


Sleeping,  palace  or  dining  car  com- 
panies. 


Express  companies. 


Same  as  for  terminal  companies. 
Same  as  for  terminal  companies . 


Licenses  and  miscellaneous 


Same  as  for  terminal  companies. 


Capitol  stock  tax  of  25  cents 
per  $100. 


Occupation  tax,  1  per  cent  of  total  gross 
receipts  paid  to  State  quarterly. 

Electric  railways  pay  quarterly  occu 
pation  tax  to  State  of  one-half  of  one 
per  cent  of  gross  receipts  in  towns  of 
10,000  to  20,000  population  and 
three-fourths  of  one  per  cent  in  towns 
of  more  than  20,000  population. 
This  does  not  apply  to  street  rail- 
ways wholly  within  towns  of  less 
than  10,000  inhabitants. 

Pay  tax  of  3  per  cent  of  gross  earnings 
quarterly  as  an  occupation  tax. 

Five  per  cent  of  gross  receipts  from  all 
sources  in  State  except  buffet  service 

Eaid  quarterly  as  occupation  tax  in 
eu  of  all  other  taxes  except  tax  on 
capital  stock. 

Two  and  one-half  per  cent  of  gross 
receipts  is  paid  to  State  annua  Uy  as 
an  occupation  tax. 


State  privilege  tax  varying  with  axe  of  dty.tSO  to  $150- 
Tax  applies  to  water  companies  whether  jdant  b 

located  within  or  without  corporate  limits. 
Tax  does  not  apply  to  municipal  corporations  or 

domestic  corporations  in  cities  or  towns  of  less  than 

3,000  inhabitants.    Tax  does  not  exempt  from  ad 

valorem  tax. 

State  pri\ilege  tax  of  $3  to  $10  per  mfle  6t  track 
according  to  population  of  city. 

Companies  seUing  light  also  pay  tax  assessed  against 
electric  light  companies. 

State  privilege  tax  of  $100  to  $250  accwtling  to  hn 
charged. 

State  prinlege  tax  of  $10  to  $100  depending  on  popor 
lation  of  city. 

State  privilege  tax  of  $25  to  $1000  depending  <m  popu- 
lation of  city. 


State  pri\-ilege  tax  same  as  for  electric  ^ht  compaaisft. 

State  pri\-ilege  tax  of  $75  to  $1000  depending  on 

population  of  city. 
Tax  does  not  apply  to  municiiMil  companies  except  in 

taxing  districts  over  8,000  inhabitants  which  sell 

gas  for  commercial  purposes. 


An  additional  State  occupation 
track  owned  is  collected. 


tax  of  $2  per  mile 


352 


Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


Texas  —  Continued. 


} 


Public  utility  corporation 


Telegraph . 


Ad  valorem  tax 


Same  as  for  terminal  companies. 


Telephone. 


Gas,  electric  light,  power  and  water- 
works. 


Utah 

Compiled  Laws,  1917,  §§ 
5892-5895,  6922-23,  5925, 
5988      Laws,  1 919,  p.  28-29. 


Pipe  line  companies. 


Railroads  and  street  railroads. 


Telegraph,  telephone,  electric  light, 
pipe  line,  power,  canal  irrigating 
and  express  companies 


Same  as  for  terminal  companies . 


Same  as  for  terminal  companies . 


Same  as  for  terminal  companies . 


Car  companies . 


Vermont 

General  Laws,  1917,  pp. 
252-254,  256-259,  266.  Laws, 
1919,  p. s51. 


E.xpress,  transportation,  stage, 
steamboats,  vessels  and  other 
water  craft. 

Gas  and  water  companies 

Railroads,  steamboat,  car  and  trans- 
portation companies. 


Electric    plants    and    transmission 
lines. 


All  property  and  franchises  assessed  by  State  Board 
of  Equalization.  All  property  except  franchises  and 
rolling  stock  apportioned  to  counties  in  proportion 
to  value  in  each  coimty.  Franchises  and  rolling 
stock  apportioned  to  counties  in  proportion  that 
length  of  tracks  in  county  bears  to  total  length  of 
tracks  in  State.  Rate  same  as  for  property  of 
individuals.  If  operated  in  county  only,^roperty 
and  franchises  assessed  in  coimty. 

Assessment  of  property  and  franchises  and  the  appor- 
tionment of  property  same  as  for  railroads.  App-or- 
tionment  of  franchises  to  each  county  in  proportion 
that  value  of  property  of  said  business  in  county 
bears  to  total  property  of  business  in  State.  Appor- 
tionment to  taxing  districts  and  rate  same  as  for 
railroads. 

Assessment  of  property  same  as  for  railroads.  Assess- 
ment of  property  apportioned  to  counties  in  por- 
portion  that  length  of  tracks  of  all  railroads  in 
county  bears  to  total  length  of  tracks  of  all  rail- 
roads in  State.  Apportionment  to  taxing  districts 
and  rate  same  as  for  railroads. 


Local  assessment, 
property. 


Rate  of  tax  same  as  for  other 


Sleeping,  parlor  and  dining  cars . 


Express  companies. 


Telegraph  companies. 


Same  as  for  express 

State  Commissioner  of  taxes  assesses  operative  prop- 
erty. State  tax  on  such  property  li  per  cent. 
Exempt  from  local  taxation.  Non-operative 
property  ass^sed  and  taxed  locally. 

When  owned  by  railroads  taxed  in  same  manner  as 
railroads.  Otherwise  assessed  locally  and  taxed  as 
other  iH-operty. 


Operative  property  exempt  from  local  taxes.    Non- 
operative  property  taxed  locally. 


/> 


Same  as  for  express. 


elephone  companies . 


Same  as  for  raiboads. 


353 


TO  THE  Methods  of  Taxing  Public  Utilities  —  (Continued) 


Capital  stock  tax 


Corporations  are  required  to 
pay  annual  franchise  tax 
based  on  graduated  scale  of 
capitalization.  Minimum 
tax  for  domestic  corpora- 
tions $10,  for  foreign  cor- 
porations 125. 

Same  as  for  telegraph  com 
panics 


Franchise  tax  same  as  for 
telegraph,  except  electric 
light  plants  and  water- 
works are  exempt  in  cities 
of  less  than  10,000  inhabi 
tants. 


Earnings  tax 


Same  as  for  telesrapb . 


Annual  license  tax  on  capital 
stock  graduated  from  $5 
on  $10,000  to  1250  on 
$4,000  000. 


Two  and  three-quarters  per  cent  of 
gross  receipts  paid  quarterly  to  State 
treasurer  as  an  occui>ation  tax. 


One  and  one-half  per  cent  of  gross 
receipts  paid  to  State  quarterly  as 
occupation  tax. 

Companies  pay  quarterly  to  State  an 
occupation  tax  of  their  gross  receipts: 
one-half  of  one  per  cent  in  towns  over 
25,000  population,  one-fourth  of  one 
per  cent  in  towns  of  10,000  to  25,000 
population. 


Licenses  and  miscellaneous 


Pay  to  State  quarterly  an  occupation 
tax  equal  to  2  per  cent  of  gross 
receipts. 


There  is  an  additional  State  occupation  tax  of  $20  for 
gas,  electric  light  and  waterworks  companies  in 
cities  of  less  than  10,000  inhabitants  and  $35  in 
cities  of  10,000  or  more  inhabitants. 


Same  as  for  railroads. 


Same  as  for  railroads. 


Same  as  for  railroads. 
Annual  license  tax  based  on 

capital    stock    graduated 

from  $10  to  $100. 

Same  as  for  railroads. 


Franchise  tax  of  1\  per  cent 
of  capital  invested  or  used 
by  corporation  in  this  State, 
to  be  paid  annually  to  the 
State.  Also  annual  license 
tax  paid  on  capital  stock, 
and  graduated  from  $10 
to  $100. 


Same  as  for  railroads. 


Same  as  for  railroads. 


Same  as  for  railroads. 


In  lieu  of  tax  on  property  and  corporate 
franchise  the  corporation  may  pay  to 
the  State  a  sum  equal  to  4}  per  cent 
of  entire  gross  earnings  within  the 
State. 


Annual  tax  to  be  paid  to  State  shall  be  at  rate  of  SI 6 
for  every  mile  of  route  located  wholly  witliin 
State  over  which  company  does  business. 

Annual  tax  on  property  and  corporate  franchise  shall 
be  at  rate  of  65  cents  per  mile  of  poles  and  one  line 
of  wire  and  5G  cents  per  mile  for  each  additional  wire 
operated  within  State,    Same  to  be  paid  to  Sute 


■BKai 


rtBM 


^a«a 


354- 


Digest  of  the  Laws  of  the  Various  States  Relating 


355 
to  the  Methods  of  Taxing  Public  Utilities  —  {Conlinued) 


STATE 


l^rginia 

Code,     1919  —  Constitution 
S§  157,  170, 176,  178-179. 

1915  —  Extra    Session,    eh 
24  80  141 

i916  — ch.  283,  472,  §  361, 
485. 

1918  — ch.  384,  409. 

Acts,  1920,  ch.  496 


Washington 

Remington's  Codes  and 
Statutes,  1915,  v.  2,  pp.  3328- 
3329.  3360-3362,  3550,  3558. 
3675,  Laws,  1917,  pp.  73-75: 
Laws,  1921.  pp.  354-355. 


Public  utility  corporation 


Railways,  steam  and  electric,  and 

canals. 


Sleeping,    parlor,    and    dining-car 
companies. 


Express  companies. 


Stock,  furniture,  fruit,  refrigerator, 
meal,  oil  tank  car  companies. 


Telegraph  companies. 


Telephone  companies . 


Steamboat  and  steamship  companies 


Electric  light  and  power  companies, 
gas  and  water  companies. 


Railroads,  including  street  railwa3rs 
and  telegraph  companies. 


Car  companies . 


Express  companies. 


Ad  valorem  tax 


Capital  stock  tax 


State  Corporation  Commission  values  all  property  and 
gross  transportation  receipts.  Rolling  stock  of 
steam  railroads  assessed  for  State  tax  only.  State 
tax  on  same  1  3/5  per  cent  of  assessed  value.  Prop- 
erty other  than  rolling  stock  taxed  by  State  and 
local  divisions  at  same  rate  as  similar  property. 
Extra  tax  of  8  cents  applies  also  to  rolling  stock. 


Same  as  for  railroads  including  extra  tax. 


State  Corporation  Commission  ascertains  and  fixes 
value  of  the  number  of  cars  required  to  make  total 
mileage  of  cars  of  each  company  within  State  during 
preceding  year.  Tax  of  1  3/5  per  cent  of  assessed 
value  paid  to  State  annually.  Extra  tax  same  as  for 
railroads. 

Same  as  for  railroads 


Same  as  for  railroads. 


Same  as  for  railroads. 


Same  as  for  railroads. 


State  Tax  Commission  assesses  all  property  used  in 
the  operation  of  a  railroad,  including  franchise 
value.  Sutunitted  to  Board  of  Equalization  which 
apportions  value  to  counties  according  to  length 
of  line  therein.  Non-operative  property  locally 
assessed  All  property  taxed  at  same  rate  as  other 
property. 

Local  assessment  of  tangible  property  for  property  tax. 


Same  as  for  car  companies. 


Earnings  tax 


Annual  State  franchise  tax,  1  5/16  per 
cent  of  gross  transportation  receipts 
within  the  State.  Annual  State  tax 
for  company  operating  wholly  within 
State  whose  operating  expenses  ex- 
ceed gross  transportation  receipts, 
1  3/16  per  cent  of  gross  transporta- 
tion receipts. 


Licenses  and  miscellaneous 


Registration  fee  not  less  than  $5  nor  more  than  $25  to 
be  paid  annually  to  the  State. 


One  and  one-half  per  cent  of  gross 
receipts  paid  to  Stat«  for  annual 
license  fee. 

Annual  license  tax,  4}  per  cent  of  gross 
receipts  from  operation  of  business 
within  State. 


License  tax,  2\  per  cent  of  gross  receipts 
within  State  to  be  paid  annually. 

License  tax  of  1 1/16  per  cent  on  gross 
earnings  in  State  for  companies  when 
earnings  are  under  $50,000  and  when 
number  of  miles  of  poles  does  not 
exceed  600  and  when  majority  of 
stock  is  not  owned  by  any  other  com- 
pany whose  receipts  exceed  $50,000. 
When  noss  receipts  exceed  $50,000 
or  number  of  mile  of  poles  exceeds 
600,  or  majcMrity  of  stoc^  or  property 
is  controlled  by  company  whose 
receipts  exceed  $50,000,  license  tax 
shall  be  equal  to  1  per  cent  on  gross 
receipts  up  to  $50,000  and  an  addi- 
tional 2  per  cent  of  such  receipts 
exceeding  $50,000,  also  sum  equal  to 
$2  per  mile  of  line  of  poles  or  conduits. 

Annual  license  tax,  1  3/16  of  one  per 
cent  on  gross  receipts  within  State. 
If  business  is  partly  within  and 
partly  without  State  then  on  gross 
receipts  earned  in  State  on  business 
passing  through,  into  or  out  of  State. 

Annual  State  franchise  tax  25/32  of  one 
per  cent  of  gross  receipts.  City  or 
town  may  impose  license  tax  for 

Privilege  of  doing  business  therein 
ut  it  shall  not  exceed  \  of  one  per 
cent  of  gross  receipts.  Merchant 
license  tax  to  be  deducted  from 
license  tax. 
Annuid  State  fee  for  public  service 
holding  fund  based  on  gross 
receipts. 


License  tax,  $3.15  for  each  mile  of  track  over  which 
cars  operate  in  State  paid  to  State.  Same  in  lieu 
of  all  other  taxes.  State  and  local,  but  not  in  lieu  of 
registration  fee  which  is  same  as  for  railroads. 

Registration  fee  same  as  for  railroads. 


Registration  fee  same  as  for  railroads. 


License  tax  $2.12}  per  mile  of  line  of  pdes  or  conduits 

operated  by  company  to  be  paid  annually. 
Re^atration  fee  same  as  for  railroads. 
Annual  registration  fee  same  as  for  railroads. 


Annual  registration  fee  same  as  for  railroads. 


Registration  fee  same  as  for  railroads. 


State  Tax  Commission  detenmnes 
gross  receipts  and  levies  tax  of  7  per 
cent  on  such  receipts.    Paid  to  State. 

Annual  State  fee  based  on  sross  receipts 
same  as  for  railroads. 

Pay  to  State  5  per  cent  of  gross 
receipts  as  privilege  tax.  State  Tax 
Coomussion  determines  amount. 

Annual  State  fee  based  'on  gross  re- 
ceipts same  as  for  railroads.  I 


356 


Digest  of  the  Laws  of  the  Various  States  Relating 


357 


to  the  Methods  of  Taxing  Public  Utilities  —  (Continitcd) 


STATE 


Washington  —  Continued. 


Public  utility  corporation 


West  Virginia 

Code,  1913:  v.  1,  pp.  397 
p.  404-418,  543,  555-57. 

Code  Supplement,  1918: 
162,  240-47.  486-87. 

Session  Lawa  1920,  1921. 


-98, 
PP 


Electric  light  line,  telephone   and 

electric  fine  companies. 
Gas  and  water  companies  and  electric 

companies 
Railroads,  street  railroads,  car  com' 

panics,  pipe  line  companies. 


ExiH-ess  companies. 


Telephone  and  telegraph . 


Hydro-electric  companies. 


Wisconsin 

Statutes,  1919,  v.  1,  pp.  979- 
980,  984-985,  987-988,  991- 
993,  99&-996.  Session  Laws, 
1921.  ch.  59. 


Gas  and  electric  light  and  water  com- 
panies. 

Railroad,  street  railway,  light,  heat 
and  power  companies  operated  in 
connection  with  street  railways, 
telegraph.  conservation  and 
regulation  companies. 


Ad  valorem  tax 


Capital  stock  tax 


Same  as  for  car  companies 

Same  as  for  car  companies 

The  State  board  of  public  works  fixes  and  assesses  true 
value  of  property  in  each  county  and  apportions  this 
yahie  to  county  courts.  County  courts  appor- 
tion value  to  taxing  districts.  These  are  required 
to  report  levies  to  State  auditor  who  collects  all 
taxes  and  pays  over  to  county  amount  due.  Real 
estate  not  used  for  purposes  immediately  connected 
with  business  taxed  locally. 


Same  as  for  railroads. 


Same  as  for  railroads. 


Local  assessment . 


Annual  franchise  tax  based 
on  capital  stock  of  domes- 
tic corporation  and  that 
part  of  capital  stock  of 
foreign  corporation  em- 
ployed within  the  State. 


Capital  stock  tax  on  domes- 
tic corporations. 


Same  as  for  express . 


Local  assessment . 


. 


Same  as  for  railroads. 


Telephone  companies . 


Sleeping  car,  express,  freight  line  and 
equipment  companies. 


All  property  within  the  State  assessed  as  a  unit  by  the 
tax  commission  annually.  Rate  is  average  rate  of 
taxation,  State,  county,  and  local  consolidated. 
Tax  on  true  cash  value  is  paid  to  the  State  treasurer. 
Fifteen  per  cent  of  tax  paid  by  street  railways,  con- 
servation and  regulation  company  is  retained  by 
State,  20  per  cent  distributed  to  counties  and  65 
per  cent  to  cities,  towns  and  villages  in  which  busi- 
ness is  done.  This  tax  in  lieu  of  all  other  taxes  on 
operative  property,  except  special  assessment  for 
local  inprovement  in  cities  and  villages.  All  non- 
operative  properties  and  the  real  estate  of  telegraph 
companies  assessed  and  taxed  locally. 


Same  as  for  raiboads. 


Tax  Commission  shall  determine  value  of  capital  stock 
used  in  business.  This  amount  divided  by  total 
car  mileage  gives  value  per  car  mile.  This  is 
multiplied  by  number  of  car  miles  in  State  to  find 
value  of  property  for  assessment  and  taxation.  Rate 
same  as  for  raih-oads.  Tax  in  lieu  of  all  other  taxes 
and  licenses  in  State 


Earnings  tax 


Same  as  for  railroads. 
Same  as  for  railroads. 
Net  income  tax  of  J  of  1  per  cent. 


Same  as  for  railroads. 


Same  as  for  railroads. 


See  license. 


Same  as  for  railroads. 


Licenses  and  miscclUuieous 


Special  license  tax  to  defray  commission  cxprnsw, 
not  to  exceed  $80,000  is  apportioned  to  puWic 
service  corporations  by  State  auditor  according  to 
last  asse&scd  value  of  property.  All  corporations 
holding  more  than  10,000  acres  of  land  shall  pay  a 
tax  of  5  cents  per  acre  for  each  acre  in  cxccw  of 
10,000  acres. 


Special  franchise  tax  as  for  railroads.  Additional 
license  tax  of  SI. 50  for  every  mile  of  road  over  which 
business  is  done  by  foreign  express  companies.  In 
no  case  less  than  1100. 


Same  special  franchise  tax  as  for  railroads.  Additional 
license  tax  from  foreign  companies  of  $1.00  per  mile 
of  wire  over  which  messages  are  sent.  EJoes  not 
apply  to  local  exchange  of  telephone  compnnies 
within  towns,  etc.    In  no  case  less  than  $100. 

Same  special  license  fee  as  railroads.  Companies  pay 
to  State  a  royalty  of  1  per  cent  of  gross  income. 


Annual  license  fee  is  as  follows; 

1.  Five  per  cent  of  total  gross  receipts 
if  such  receipts  equal  or  exceed 
$500,000. 

2.  Foiu:  per  cent  of  total  gross  receipts 
if  they  equal  or  exceed  $300,000  and 
are  less  than  $500,000. 

3.  Three  per  cent  of  total  gross  receipts 
if  they  equal  or  exceed  $100,000  and 
arc  less  than  $300,000. 

4.  Two  and  one-half  per  cent  of  total 
gross  receipts  if  they  are  less  than 
$100,000.  License  fee  upon  15  per 
cent  of  gross  receipts  from  exchange 
service  is  paid  to  State,  balance  upon 
85  per  cent  of  such  gross  receipts 
paid  to  towns,  cities  or  villages  in 
which  same  are  located.  License 
fees  on  gross  receipts  from  toll  line 
service  paid  to  the  State. 

If  license  fee  upon  gross  receipts  is  less 
than  5  cents  for  each  telephone  in- 
strument operated,  then  license  fee 
shall  be  5  cents  for  every  such  instru- 
ment. 


358 


Digest  of  the  Laws  of  the  Various  States  Relating 


STATE 


Wisconsin  —  Continued. . . 


Wyoming. 


Public  utility  corporation 


Tax  Laws,  1919,  pp.  6-7, 31- 
32,  54.  Session  Laws,  1921 
pp.  82-83. 115-116. 


Water,  light,  beat  and  power  com- 
panies. 

Railroad,  telegraph,  telephone 

and  pipe  line  companies. 

Car  companies 


Ad  valorem  tax 


359 
TO  THE  Methods  of  Taxing  Public  Utilities  —  (Concluded) 


Express  companies . 


Other  public  utilities. 


Property  assessed  by  Tax  Commission  as  single  item 
and  apportioned  to  local  districts.  Tax  rate  the 
same  as  for  other  property  in  the  district. 


State  Board  of  Equalisation  assesses  all  property  and 
apportions  vahiation  to  counties  in  proportion  to 
mileage.    Rate  same  as  for  other  property. 

State  Board  of  Equalization  ascertains  value  and  num- 
ber of  cars  of  each  kind  and  apportions  same  to  the 
counties  on  basis  of  car  mileage. 


Board   of  Equalization    assesses   all  property   and 
apportions  valuation  to  counties. 


Notes:  This  digest  does  not  include  organization  taxes  on  domestic  corporations,  or  foreign 
corporations  license  fees  and  taxes  imposed  where  the  corporation  registers  in  this  State.  Also  special 
municipal  license  taxes  are  not  included. 

^^      iVnzona  —  Following  statement  was  made  by  the  State  Tax  Commission  of  Arizona,  July  14,  1920: 
When  the  net  earnings  of  telephone  and  telegraph  lines  and  railroads  exceed  eight  per  cent,  these  classes 
of  property  are  assessed  at  valuation  found  bj*  capitalizing  the  net  income." 

Nevada  — FoUowing  statement  was  made  by  Nevada  Tax  Commission,  July  13,  1920:  "  Method 
of  assessing  public  utilities  in  State  of  Nevada.     1.  Where  the  gross  receipts  are  less  than  actual  expenses 


Capital  stock  tax 


Earnings  tax 


Licenses  and  miscellaneous 


Five  per  cent  of  gross  earnings  each 
year  to  be  paid  to  State  in  lieu  of  all 
taxes,  State  and  county  —  one-half 
sum  apportioned  to  counties  balance 
kept  by  State. 


V 


.including    taxes   but  excluding   interest    charges)  the  assessment  valuation  is  based  on  the  market  or 

^crap  value  of  the  plant  or  road.  ,  „  .       ,.  .l       i     *•       • 

2  Where  the  gross  receipts  cover  actual  expenses  by  a  small  margin,  the  assessment  valuation  is 
based  upon  a  re-duplication  cost  (new)  of  the  plant.  Where  the  gross  receipts  exceed  the  a^timl 
expenses  by  considerable  margin,  the  assessment  valuation  is  based  on  the  re-duphcation  cost  (new)  of  the 
plant  plus  the  franchise  value.  The  franchise  value  is  determined  by  capitalizing  the  annual  net  proct'eds 
at  the  prevailing  rate  of  interest,  and  deducting  the  reduplication  cost  (new).  In  determining  the  net 
proceeds  an  annuity  of  4  per  cent  of  the  plant  cost  is  allowed  in  addition  to  the  actual  expenses. 


■:5 


APPENDIX  B 


361 


DATA  FOR  ESTIMATING  YIELD  OF  PROPOSED  TAXES 

ON  PUBLIC  UTILITIES 


TABLE  I 

General  Summary,  Average  of  Four  Years,  1913,  1915,  1917 

AND   1918 


Gross  operating  revenue 

Net  income*  

State  taxes  and  personal  property  tax 

Special  franchise  tax     

Total  above  taxes 

Net  income  and  above  taxes       . . . , 

Ration:   above  taxes  to  gross  opera 

ing  revenue  


Steam 
railroads 


$279,661,373 

36.575,057 

1,148.500 

1.517.000 

2.665,500 

39,241,157 

.953% 


Electric 
raUways 


$129,093,899 

13.901,915 

1,423,518 

4,337,322 

5,760.841 

19,650,256 

4.46% 


Tclephona 

and  telegraph 

companies 


$58,837,846 

16,279.860 

761,230 

2.029.981 

2.791,236 

19.021.072 

4.74% 


Gas  and 
electric 


$140,033,155 

29,922,064 

1,063,127 

4,089.673 

5,152.800 

35.074,864 

3.67% 


Total  of  all 

public 
utilities 


$607,626,273 

96,679,496 

4.396.375 

11.973,976 

16,370,377 

113.037,349 

2.69% 


TABLE  III 

Steam  Railroads,  1913-1918 


Grow  operating  revenue 

Net  incOTne*         

State  tax  and  personal 

property  tax 

Special  franchise  tax 

Total  above  taxes 

Net  income  and  above 

taxes  

Ratio:    above  taxes  to 

gross      operating  re 

venue  a  —  6  %    . .    . 


1913 


b$231 
49, 

1. 

1. 

a     2, 

c    52, 


,173.135 
782.983 

273,000 
391.000 
664,000 

446,983 
1.15 


1915 


$226,540,621 
30,563.284 

954,000 
1.204.000 
2.158,000 

32,721,284 


0.953 


1917 


$296,618,295 
41.113,887 

1,267,000 
1,605,000 
2,872,000 

43.985,887 


0  968 


1918 


$364,313,441 
24,842,476 

1,100,000 
1,868,000 
2,968,000 

27,810.476 


0.814 


Total 
four  years 
1913-1918 


$1,118,645,492 
146,302,630 

4,594,000 

6.068,000 

10,662,000 

156,964.630 


.953 


Average, 
four  years 
1913-1918 


$279,661,373 
36,575.657 

1.148.500 
1.517,000 
2.665.500 

39.241,157 


.«53 


*  After  deduction  of  taxes. 


•  After  deduction  of  taxes3 


TABLE  II 

General  Summary,*  All  Public  Utility  Companies,   1913, 

1915,  1917,  1918 


Gro8«  operating  revenue. 

Net  inf'ome*         

State  taxes  and  personal 

property  tax 

Special  franchise  tax 

Total  above  taxes 

Net   income    plus    total 

above  taxes      

Ratio:     above   taxes   to 

groes  operating  revenue 


1913 


$519,583,217 
114,203,359 

4,324,500 
11,231,000 
15.555,500 

129,758,859 

2.99% 


1915 


$526,331,248 
96,651,581 

4,175,700 

9,524,000 

13.699,700 

110,351,272 

2.60% 


1917 


$650,965,825 
103,638.534 

4,650.454 
12.835.407 
17.485.861 

121.124,395 

2.68% 


1918 


$733,624,807 
72,224,514 

4,434.848 
14.305,503 
18,740,351 

90,964.865 

2.55% 


Total 

four  years 
1913-1918 


Average, 
four  years 
1913-1918 


$2,430,505,097 
386,717,988 

17,585,502 
47,895,910 
65,481,412 

452,199,391 

2.69% 


$607,626,274 
96,679,497 

4,396,375 
11,973,977 
16,370,353 

113.049,847 

2.69% 


\  r  -^ 


TABLE  IV 
Electric  Railways  (Including  Subways)   1913-1918 


Gross  operating  revenue. 

Net  income*         

State  taxes  and  personal 

property  tax 

Special  franchise  tax 

Total  above  taxes 

Net  income  and  above 

taxes  

Ratio:     above   taxes   to 

gross  operating  revenue 
a  —  b% 


1913 


$121,506,081 
16,860,581 

1,299,000 
4,300,000 
5,599.000 

e     22.459.581 


4.44 


1915 


$123, 
15, 

1, 
3, 

5, 


431,830 
590,221 

517,000 
600,000 
117,000 


20,707,221 


4.14 


1917 


$134,570,404 
15,726,949 

1,476,475 
4,692,880 
6,169,361 

21.896,310 


4.58 


1918 


$136,867,284 
7,429,909 

1,401.599 
4.756.405 
6.15S.004 

13,587,913 


4.49 


Total, 
four  years 
1913-1918 


$516,375,599 
55,607,660 

5,694,074 
17,349.291 
23.043.365 

78,601,025 


4.46 


Average, 
four  years 
1913-1918 


$129,093,899 
13.901,915 

1,423,518 
4,337.322 
5.760.841 

19,050,256 


448 


♦  After  deduction  of  taxes. 


*  After  deduction  of  taxes. 


[3«0] 


i4 


362 


APPENDIX  C. 


TABLE  V 
Telephone  and  Telegraph  Companies,  1913-1918 


1913 

1915 

1917 

1918 

Total, 
four  years 
1913-1918 

Average, 
four  years 
1913-1918 

Gross  operating  revenue. . 
Net  income* 

b  $48,168,691 
15,321,521 

787,000 

1,930,000 

o     2,717,000 

«    18,038,521 
5.64 

$51,574,158 
16,228.717 

781,000 
1,720,000 
2,501,000 

18,729,717 
4.84 

$65,860,416 
15,785,296 

719,196 
2,182,185 
2,901,381 

18,686,077 
4.40 

$69,748,120 
17,783,907 

757,724 
2,287,712 
3,045,466 

20,829,373 
4.36 

$235,351,385 
65,119,441 

3,044,920 

8,119,927 

11,164,947 

76,284,288 
4.74 

$58,837,846 
16,279,860 

761,230 
2,029,981 
2,791,236 

19,071,072 
4  74 

State  taxes  and  personal 
property  tax 

Special  franchise  tax 

Total  above  taxes 

Net    income    and    above 
taxes  

Ratio:  above  taxes  to  gross 
operating  revenue  a  —  6 

*  After  deduction  of  taxes. 


TEXT  OF  PROPOSED  BILLS 


PEOPOSED  UNINCORPORATED-BUSINESS  TAX  LAW 

Introduced  and  developed  by  discussion  and   amendment   in 
1922  session  of  legislature. 

AN  ACT 

To  amend  the  tax  law,  in  relation  to  imposing  a  tax  upon  and 
with  respect  to  income  from  unincorporated  trade  or  business. 

The  People  of  the  State  of  Neiv  York,  represented  in  Senate 
and  Assembly,  do  enact  as  follows: 

Section  1.  Chapter  sixty-two  of  the  laws  of  nineteen  hundred 
and  nine,  entitled  "An  act  in  relation  to  taxation,  constituting 
chapter  sixty  of  the  consolidated  laws,"  is  hereby  amended  by 
adding  a  new  article,  to  be  article  seventeen,  to  read  as  follows: 


V 


TABLE  VI 
Gas  and  Electric  Companies,  1913-1918 


Gross  operating  revenue. 

Net  income* 

State  taxes  and  personal 

property  tax 

Special  franchise  tax 

Total  above  taxes 

Net  income  and  above 

taxes  

Ratio:      above  taxes  to 

gross  operating  revenue 

a-h% 


1913 


a  $118, 
32, 


3, 
4, 

36. 


735,310 
238.274 

965,500 
610,000 
575,500 

813,774 
3.85 


1915 


$124,784,639 
34,269,359 

923.700 
3,000,000 
3,923,700 

38,193,050 


3.14 


1917 


$153,916,710 
31,012,402 

1,187,783 
4,355,336 
5,543,119 

36,555.521 


3.60 


1918 


$162,695,962 
22,168,222 

1,175,525 
5,393,356 
6,568,881 

28,737,103 


4.04 


Total, 
four  years 
1913-1918 


$560,132,621 
119,688,257 

4,252,508 
16,358,692 
20,611,200 

140,299,457 


3.67 


♦  After  deduction  of  taxes. 


Average, 
four  years 
1913-1918 


$140,033,155 
29,922,064 

1,063,127 
4,089,673 
5,152,800 

35,074,864 


3.67 


ARTICLE  17. 

Taxes  Upon  and  With  Respect  to  Income  from  Unincor- 
porated Trade  or  Business. 

S'ection  400.  Imposing  of  tax ;  rate. 

401.  Gross  income. 

402.  Net  income ;  taxable  net  income. 

403.  Deductions. 

404.  Exemption. 

405.  Ascertainment  of  gain  and  loss. 

406.  Credit  for  loss  in  previous  year. 

407.  Allocation  of  taxable  net  income. 

408.  Return. 

409.  Payment  of  tax. 

[363] 


I 


iii 


* ' 


! 


364 

Section  410.  First  levy. 

411.  Additional  tax. 

412.  Administration;  application  of  article  sixteen. 

413.  Exemption  from  certain  other  taxes. 

§  400.  Imposing  of  tax ;  rate.  An  annual  tax  of  three  and  one- 
lialf  per  centum  is  hereby  imposed  on  the  taxable  net  income,  al- 
located to  the  state,  as  provided  by  this  article,  derived  from  any 
trade  or  business  carried  on  within  the  state  for  gain  or  profit  by 
an  individual,  statutory  or  common  law  trust,  estate,  partnership 
or  limited  or  special  partnership,  other  than  a  trade  or  business 
in  which  the  gain  or  profit  is  derived  principally  from  the  pro- 
fessional service  of  the  individual  or  of  the  members  of  the  part^ 
nership  carrying  on  such  trade  or  business,  or  from  the  profes- 
sional service  of  the  employees  of  such  individual  or  partnership, 
and  in  which  no  capital  expenditure  is  required  or  only  capital 
expenditure  as  compensation  for  or  incidental  to  professional 
service.  JSTet  income  received  from  commissions  or  brokerage 
fees  for  transactions  or  service  within  the  state,  by  a  commission 
merchant,  factor,  broker  or  converter,  shall  not  be  deemed  derived 
from  professional  service  and  shall  be  subject  to  the  tax  imposed 
by  this  article,  without  regard  to  capital  expenditure  required. 
The  investment  and  reinvestment  of  trust  funds  in  real  property 
and  the  holding  and  leasing  of  such  real  property  by  a  trustee 
shall  not  be  deemed  carrying  on  a  trade  or  business  within  the 
meaning  of  this  article. 

§  401.  Gross  income.  The  term  "gross  income"  includes 
gains,  profit  and  income  derived  from  the  trade  or  business  of 
whatever  kind  and  in  whatever  form  paid,  including  gains,  profit 
or  income  from  dealings  in  real  estate  or  personal  property,  as 
compensation  for  services,  or  from  interest,  rents,  commissions, 
brokerage  fees  or  otherwise  in  carrying  on  such  trade  or  business, 
but  not  including  corporate  dividends. 

§  402.  Net  income;  taxable  net  income.  The  term  "net  in- 
come" means  the  gross  income  from  the  trade  or  business  less 
deductions  allowed  by  this  article.  The  term  "taxable  net  in- 
come" means  the  net  income  less  the  exemption  allowed  by  this 
article. 


•\ 


\ 


f>0 


365 

§  403.  Deductions.  In  computing  the  taxable  net  income  from 
the  trade  or  business  there  shall  be  allowed  as  deductions  such 
deductions,  enumerated  in  subdivisions  one  to  nine,  both  inclusive, 
of  section  three  hundred  and  sixty  of  this  chapter  as  are  directly 
connected  with  or  incurred  in  carrying  on  the  trade  or  business. 
A  reasonable  amount  may  also  be  deducted  for  the  personal  ser- 
vice of  the  individual  or  members  of  the  partnership  carrying  on 
such  trade  or  business,  if  actively  engaged  in  the  conduct  thereof. 
In  the  case  of  a  debt  existing  on  January  first,  nineteen  hundred 
and  twenty-one,  no  more  than  its  fair  market  value  on  that  date 
shall  be  deducted.  A  worthless  debt  arising  since  January  first, 
nineteen  hundred  and  twenty-one,  from  unpaid  wages,  salarv, 
rent  or  any  similar  item  of  taxable  income,  is  not  an  allowable 
deduction,  unless  the  income  which  such  item  represents  has  been 
included  as  income  by  the  taxpayer  in  a  return  rendered  under 
this  article.  The  items  enumerated  in  section  three  hundred  and 
sixty-one  are  not  deductible. 

§  404.  Exemption.  In  computing  the  taxable  net  income  from 
the  trade  or  business  there  shall  be  allowed  in  addition  to  the  de- 
ductions allowed  by  the  last  preceding  section  an  exemption  of 
five  thousand  dollars. 

§  405.  Ascertainment  of  gain  and  loss.  1.  For  the  purpose  of 
ascertaining  the  gain  derived  or  loss  sustained  from  the  sale  or 
other  disposition  of  property,  real,  personal  or  mixed,  the  basis 
shall  be  in  case  of  property  acquired  on  or  after  January  first, 
nineteen  hundred  and  nineteen,  the  cost  thereof,  or  the  inventory 
value  if  the  inventory  is  made  in  accordance  with  this  article. 

2.  In  case  of  property  acquired  prior  to  January  first,  nineteen 
hundred  and  nineteen,  and  disposed  of  thereafter, 

(a)  'No  profit  sha^l  be  deemed  to  have  been  derived  if  either 
the  cost  or  the  fair  market  price  or  value  on  January  first,  nine- 
teen hundred  and  nineteen,  exceeds  the  value  realized. 

(b)  No  loss  shall  be  deemed  to  have  been  sustained  if  eitlier 
the  cost  or  the  fair  market  price  or  value  on  January  first,  ninc^ 
teen  hundred  and  nineteen,  is  less  than  the  value  realized. 

(e)  Where  both  the  cost  and  the  fair  market  price  or  value 
on  January  first,  nineteen  hundred  and  nineteen,  are  less  than 
the  value  realized,  the  basis  for  computing  profit,  shall  be  the  cost 


i:t 


M 


fr> 


'"^ 


366 


or  the  fair  market  price  or  value  on  January  first,  nineteen 
hundred  and  nineteen,  whichever  is  higher. 

(d)  Where  both  the  cost  and  the  fair  market  price  or  value 
on  January  first,  nineteen  hundred  and  nineteen,  are  in  excess 
of  the  value  realized,  the  basis  for  computing  loss  shall  be  the 
cost  or  the  fair  market  price  or  value  on  January  first,  nineteen 
hundred  and  nineteen,  whichever  is  lower. 

§  406.  Credit  for  loss  in  previous  year.  If  for  any  taxable 
year  beginning  after  December  thirty-first,  nineteen  hvindred  and 
twenty,  it  appears  upon  the  production  of  evidence  satisfactory  to 
the  tax  commission  that  in  the  conduct  of  a  trade  or  business  to 
which  this  article  is  applicable  a  net  loss  was  sustained  the  amount 
of  such  net  loss  shall  be  deducted  from  the  net  income  of  such 
trade  or  business  for  the  succeeding  taxable  year;  and  if  such 
net  loss  is  in  excess  of  the  net  income  for  such  succeeding  taxable 
year,  the  amount  of  such  excess  shall  be  allowed  as  a  deduction  in 
computing  the  net  income  for  the  next  succeeding  taxable  year. 
Such  deduction  shall  be  made  under  regulations  prescribed  by  the 
tax  commission. 

§  407.  Allocation  of  taxable  net  income.  1.  If  the  entire  trade 
or  business  is  carried  on  in  this  state,  the  tax  imposed  by  this 
article  shall  be  computed  upon  the  entire  taxable  net  income  for 
the  taxable  year  from  such  trade  or  business. 

2.  If  the  entire  trade  or  business  is  not  carried  on  in  the  state, 
the  tax  imposed  by  this  article  shall  be  computed  upon  a  proper- 
tion  of  the  entire  taxable  net  income  to  be  determined  in  accord- 
ance with  the  foregoing  rules: 

(a)  The  taxable  net  income  shall  be  allocated  as  follows:  Of 
one-half  of  such  taxable  net  income,  such  portion  shall  be  at- 
tributed to  the  trade  or  business  carried  on  within  the  state  as 
shall  be  found  by  multiplying  such  one-half  by  a  fraction  whose 
numerator  is  the  value  of  the  tangible  property  employed  in  the 
trade  or  business  and  situated  within  the  state,  and  whose  denomi- 
nator is  the  value  of  all  the  tangible  property  employed  in  the 
trade  or  business  wherever  situated. 

(b)  Of  the  remaining  one-half  of  such  taxal)lc  net  income,  such 
portion  shall  be  attributed  to  trade  or  business  carried  on  within  the 
state  as  shall  be  found  by  multiplying  such  one-half  by  a  fraction 


b 


X. 


4# 


v.^ 


m 


" 


367 

whose  numerator  is  the  expense  paid  for  wages,  salaries,  commis- 
sions or  other  compensation  to  employees,  and  assignable  to  the 
state  as  hereinafter  provided,  plus  the  amount  of  purchases  within 
the  state,  assignable  to  the  state  as  hereinafter  provided,  plus 
the  amount  of  gross  receipts  from  trade  or  business,  assignable  to 
the  state  as  hereinafter  provided;  and  whose  denominator  is  the 
total  expense  paid  for  wages,  sall'aries,  commissions  or  other  com- 
pensation to  all  employees  of  the  trade  or  business,  plus  the  amount 
of  purchases  wherever  made,  plus  the  amount  of  the  gross  receipts 
from  all  business,  wherever  transacted. 

(c)  If  the  foregoing  rule  for  the  apportionment  of  a  part  of 
the  taxable  net  income  by  the  location  of  the  tangible  property 
be  inapplicable,  the  entire  taxable  net  income  from  the  trade  or 
business  shall  be  apportioned  in  accordance  with  rule  (b).  A  rule 
shall  not  be  deemed  to  be  inapplicable  merely  because  all  of  the 
tangible  property,  or  the  purchases,  or  the  expense  for  wages, 
salaries,  commissions  or  other  compensation,  or  the  gross  receipts 
from  the  trade  or  business  are  found  to  be  situated,  made,  in- 
currred  or  received  outside  the  state. 

(d)  The  value  of  the  tangible  property  for  the  purposes  of 
this  section  shall  be  the  average  value  of  such  property  during  the 
year  for  which  the  income  is  returned.  The  amount  assignable 
to  the  state  of  expenses  paid  for  wages,  salaries,  commissions  or 
other  compensation  to  employees  shall  be  such  expense  for  the 
year  for  which  the  income  is  returned  as  represents  the  compen- 
sation of  employees  not  chiefly  situated  at,  connected  with  or  sent 
out  from  premises  for  the  transaction  of  trade  or  business  which 
are  owned  or  rented  outside  the  state.  The  amount  of  purchases 
assignable  to  the  state  shall  be  all  purchases  of  tangible  real  or 
personal  property  actually  located  within  the  state  at  the  time  of 
purchase,  and  all  other  purchases  of  property  negotiated  or 
effected  at  a  place  of  business  owned  or  rented  within  the  state 
except  the  purchase  of  tangible  real  or  pei*sonal  property  actually 
located  without  the  state  at  the  time  of  purchase.  The  amount; 
of  the  gross  receipts  from  the  trade  or  business  assignable  to  the 
state  shall  be  the  amount  of  gross  receipts  from  (1)  sales  of 
property  or  servdco,  except  thpse  negotiated  or  effected  or  executed 
by  agents  or  ag^encies  chiefly  sitwated  at,  connpp.teii  with  or  fiwnt 


t\ 


ji 


V 


368 

out  from  i^remises  used  for  the  transaction  of  business  which  are 
owned  or  rented  outside  the  state,  and  sales  othenvise  determined 
by  the  tax  commission  to  be  attributed  to  trade  or  business  con- 
ducted from  such  premises,  or  to  be  for  other  reasons  allocated 
outside  the  state;  (2)  rentals  of  real  property  and  tangible  per- 
sonal property  situated  in  the  state  and  royalties  from  the  use 
within  the  state  of  patents  and  other  intangible  propei-ty. 

(e)  If  by  reason  of  the  manner  in  which  the  books  and  records 
of  a  trade  or  business  are  kept,  or  otherwise,  the  tax  commission 
deem  that  a  different  method  of  allocation  than  that  prescribed 
by  the  foregoing  niles  will  more  accurately  determine  the  amount 
of  taxable  net  income  from  a  trade  or  business  reasonably  at- 
tributable to  the  state,  the  tax  commission  may  permit  allocation 
upon  such  basis,  provided  the  individual,  fiduciary  or  partnership 
carr)^ing  on  such  trade  or  business  shall  apply  therefor  on  or 
before  the  time  when  the  return  is  due  to  be  fi]ed,  and  shall  file 
with  the  tax  commission,  under  oath,  a  supplemental  return,  in 
such  detail  as  the  tax  commission  may  require,  showing  the  facts 
upon  which  the  amount  of  taxable  net  income  from  such  trade  or 
business  reasonably  attributable  to  trade  or  business  within  the 
state  may  be  determined. 

§  408.  Return.  Every  individual,  fiduciary,  and  part- 
nership canning  on  a  trade  or  business,  income,  profit 
or  gain  from  which  is  subject  to  tax  under  this  article, 
on  or  before  the  date  prescribed  by  section  three  hun- 
dred and  seventy-one  for  making  returns  of  personal  in- 
come, and  although  no  return  shall  be  required  from  such 
individual,  fiduciary  or  partnership  by  such  section,  shall 
make  under  oath  return  as  to  such  business  or  trade,  and  the  ""ain, 
profit  or  income  therefrom,  as  the  tax  commission  may  rc-quire  for 
the  purpose  of  making  any  computation  or  otherwise  performing 
its  duty  under  this  article.  The  tax  commission  may  require  such 
return  to  be  made  as  a  part  of  a  return  from  such  individual, 
fiduciary  or  partnership  under  section  three  hundred  and  sixty- 
seven,  section  three  hundred  and  sixty-eight  or  section  three  hun- 
dred and  sixty-nine  of  this  chapter.  The  tax  commission  may 
require  return  from  any  individual,  fiduciary  or  partnership 
carrying  on  a  trade  or  business  within  the  state,   although   it 


369 

appears  that  the  net  income,  profit  or  gain  from  such  trade  or 
business  is  less  than  ^\e  thousand  dollars. 

§  409.  Payment  of  tax.  If  the  trade  or  business  be  carried  on 
by  an  individual,  trust  or  estate,  the  tax  on  the  net  income 
allocated  to  and  taxable  in  this  state  shall  be  paid  by  the  individual 
or  fiduciary  at  the  same  time  and  in  the  same  manner  as  a  tax 
upon  and  with  respect  to  personal  income.  If  the  trade  or 
business  be  carried  on  by  a  partnership  the  tax  on  the  net  income 
of  the  partnership  allocated  to  and  taxable  in  this  state  shall  in 
like  manner  be  paid  by  the  individual  partners  in  the  proportion 
of  their  distributive  shares. 

§  410.  First  levy.  The  tax  imposed  by  this  article  shall  be 
levied,  collected  and  paid  in  the  year  nineteen  hundred  and 
twenty-two  upon  and  with  respect  to  the  taxable  income  for  the 
calendar  year  nineteen  hundred  and  twenty-one,  or  for  any  tax- 
a'ble  year  ending  during  the  calendar  year  nineteen  hundred  and 
twenty-one. 

§  411.  Additional  tax.  The  tax  imposed  by  this  article  shall 
be  in  addition  to  all  other  taxes  imposed  by  law,  including  taxes 
imposed  under  article  sixteen  of  this  chapter  upon  and  with 
respect  to  personal  income. 

§  412.  Administration;  application  of  article  sixteen.  The 
tax  commission  shall  administer  and  enforce  the  tax  imposed  by 
this  article.  All  the  provisions  of  article  sixteen  of  this  chapter, 
so  far  as  not  inconsistent  with  this  article,  shall  apply  to  the 
administration  and  enforcement  of  the  provisions  of  this  article, 
including  the  ascertainment,  payment,  collection  and  disposition 
of  taxes  hereunder. 

§  413.  Exemption  from  certain  other  taxes.  After  this  article 
takes  effect,  personal  property  employed  in  a  trade  or  business  to 
which  this  article  is  applicable  shall  not  be  assessed  or  taxed  loca^lv 

• 

for  state  or  local  pur])oscs  as  personal  property  or  as  capital  in- 
.  vested  in  business  or  otherwise.  The  term  "  pci-sonal  proportv '' 
for  the  purpose  of  the  exemption  and  assessment  from  taxation 
locally  as  granted  by  this  section  shall  include  any  movable 
luachinerv^  and  equipment  used  for  trade  or  manufacture  and  not 
essential  for  the  support  of  the  huilding,  structure  or  superstruc- 


»*^ 


i> 


,^ 


m 


370 

turc,  and  removable  without  material  injury  thereto.  The  term 
'"  personal  property/'  as  used  in  this  section,  shall  not  include 
boilers,  ventilating  apparatus,  elevators,  pKimbing,  heating,  light- 
ing and  power  generating  apparatus,  shafting  other  than  counter 
shafting,  equipment  for  the  distribution  of  heat,  light,  power, 
gases  and  liquids,  nor  any  equipment  consisting  of  structures  or 
erections  to  the  operation  of  Avhich  machinery  is  not  essential. 
An  owner  of  a  building  is  entitled  to  the  same  exemption  under 
this  section  as  a  lessee. 

§  2.  The  sum  of  three  hundred  thousand  dollars  is  hereby  aj)- 
propriated  for  the  additional  expenses  of  the  state  tax  department 
required  by  this  act.  On  or  before  April  first,  nineteen  hundred 
and  twenty-two,  the  tax  department  shall  file  with  the  governor, 
the  chairman  of  the  senate  finance  committee  and  the  chairman  of 
the  assembly  ways  and  means  committee  a  tentative  segregation  of 
the  amount  hereby  appropriated,  and  before  any  moneys  shall  be 
paid  out  of  this  fund  by  the  state  treasurer  on  the  warrant  of  the 
comptroller  such  segregation  shall  have  their  approval.  'No  change 
shall  be  made  in  this  tentative  segregation,  without  the  approval 
of  the  governor,  the  chairman  of  the  senate  finance  committee  and 
the  chairman  of  the  assembly  ways  and  means  committee.  The 
sum  hereby  appropriated  shall  be  paid  out  of  the  treasurer  on  the 
warrant  of  the  comptroller  on  the  order  of  the  tax  commission. 

§  3.  This  act  shall  take  effect  immediatelv. 


## 


'' 


371 


PKOPOSED  PUBLIC-UTILITY  TAX  LAW. 

Preliminary  Note 

Memorandum  of  prosix3ctive  public  utility  bill  imposing  a 
gross-net  tax  in  lieu  of  the  source  of  taxation  upon  Public  Util- 
ities now  existing  in  the  Stiitt'  of  New  York.  Under  present  con- 
stitutional limitation,  the  drafting  of  such  a  bill  is  a  difficult 
matter,  and  the  following  is  intended  only  as  a  tentative  pro- 
posal. It  is  hercwith  printed  for  further  discussion  and  develo^>- 
ment. 

AN  ACT 

To  amend  the  tax  law  in  relation  to  taxation  of  public  utilities. 

The  People  of  the  Stale  of  New  York,  represented  in  Senate 
and  Assembly,  do  enact  as  follows: 

Section  1.  Subdivision  four  of  section  one  hundred  and 
seventy-one  of  chapter  sixty-tw^o  of  the  laws  of  nineteen  hundred 
and  nine,  entitled  "An  act  in  relation  to  taxation,  constituting 
chapter  sixty  of  the  Consolidated  Laws,"  such  subdivision  having 
been  last  amended  by  chapter  ninety  of  the  law^s  of  nineteen  hun- 
dred and  twenty-one,  is  hereby  amended  to  read  as  follows; 
Fourth.  Assess,  determine,  revise,  readjust  and  impose  the  cor- 
poration taxes  under  articles  nine  and  [nine-a]  nine-h  and  'the 
taxes  under  article  nine-a  of  this  chapter,  and  on  and  after  July 
first,  nineteen  hundred  and  twenty-one,  ha\'e  the  power  and  per- 
form the  duties  of  the  state  comptroller  in  the  collection  of  such 
taxes  and  the  crediting  uf  such  taxes  erroneously  paid,  as  juris- 
diction thereof  is  vested  in  such  commission  bv  section  one  bun- 
dred  and  seventy-nine  of  this  chapter. 

§  2.  Subdivision  three  of  section  one  hundred  and  seventv- 
one-a  of  such  chapter  as  added  by  chapter  ninety  of  the  laws  of 
nineteen  hundred  and  twenty-one,  is  hereby  amended  to  read  as 
follows:  Exercising  the  powers  and  performing  the  duties  con- 
ferred or  imposed  by  articles  nine,  ninc-a,  nine-h,  and  sixteen  of 
this  chapter  on  the  tax  connnission  in  relation  to  the  revision  and 
resettlement  of  accounts  for  taxes  under  such  article,  on  appli'*a- 
tions  made  therefor; 


. 


:»,, 


tl 


i     . 


l\ 


I  \ 


372 


§  3.  Article  nine-a  of  such  chapter  as  added  hy  chapter  seven 
hundred  and  twenty-six  of  the  laws  of  nineteen  hundred  and 
seventeen  is  hereby  renumbered  article  nine-b. 

§  4.  Such  chapter  is  hereby  amended  by  inserting  therein  a 
new  article,  to  be  known  as  article  nine-a  thereof,  and  to  read  as 
follows : 

AirnCE  NINE-A. 

Public  Utilities  Tax. 

Section  207-a.  Short  title. 

207-b.  Definitions. 

207-c.  Rate  of  tax. 

207-d.  Computation  of  earnings. 

207-e.  Modification  of  computation. 

207-f.  Independent  units. 

207-g.  Reports  to  commission. 

2()7-h.  Consolidated  return. 

207-i.  Payment  of  tax  and  penalty  for  failure. 

207-j.  In  lieu  of  other  taxes. 
207-k.  Application  of  sections  of  article  nine. 

207-1.  Unconstituticnality. 

Section  207-a.  Short  title.  This  article  shall  be  known  as  the 
Public  Utilities  Tux  Law. 

§  207-b.  Definitions.     When  used  in  this  article: 

(a)  "  Public  utility  "  shall  include  any  public  service  surface, 
elevated,  or  undergi'ound  railroad,  canal  boat,  steamboat,  ferry, 
[except  a  ferry  line  operated  between  any  of  the  boroughs  of  the 
City  of  New  York,  under  a  lease  granted  by  the  cityj  express, 
telegraph,  wireless  telegraph,  telephone,  cable,  navigation,  pipe, 
transfer,  baggage,  express,  freight  car,  palace  car,  or  sleeping 
car  line,  and  every  other  public  service  line  for  transportation, 
or  for  the  transmission  of  messages,  or  any  plant  for  the  supply 
to  the  public  of  water,  or  gas,  electric,  or  steam  heating,  lighting, 
or  power  purposes. 

(b)  "  Company  "  shall  mean  any  corporation,  joint  stock  com- 
pany, or  association,  or  the  receiver  of  any  such  company,  operat- 
ing a  public  utility  [but  shall  not  include  a  political  subdivision 
of  the  state]. 


373 

(c)  "Gross  earnings"  shall  include  all  receipts  from  the 
operation  of  a  public  utility. 

(d)  "  Net  earnings  '-  shall  be  net  earnings  from  the  operation 
of  a  public  utility  after  deduction  of  opei*ating  expenses  and  taxe& 
assignable  to  operation,  except  special  franchise  taxes  in  this  state 
or  the  tax  imposed  by  this  article. 

§  207-c.  Rate  of  tax.  Every  company  shall  pay  an  annual  tax 
which  shall  be  based  on  gross  earnings  and  which  shall  be  the 
percentage  of  gross  earnings  fixed  herein : 

(a)  When  it  has  no  net  earnings  or  its  net  earnings  do  not 
exceed  5  per  cent  of  its  gross  earnings  —  1  per  cent ; 

(b)  When  its  net  earnings  exceed  5  per  cent  of  its  gross  earn- 
ings but  do  not  exceed  10  per  cent  —  1^4  P^r  cent ; 

(c)  When  its  net  earnings  exceed  10  per  cent  of  its  gross  earn- 
ings but  do  not  exceed  15  per  cent  —  V/^  per  cent; 

(d)  When  its  net  earnings  exceed  15  per  cent  of  its  gross 
earnings  but  do  not  exceed  20  per  cent  —  1%  per  cent ; 

(e)  When  its  net  earnings  exceed  20  per  cent  of  its  gross 
earnings  but  do  not  exceed  25  per  cent  —  2  per  cent. 

(f )  When  its  net  earnings  exceed  25  per  cent  of  its  gross  earn- 
ings but  do  not  exceed  30  per  cent  —  2 Vi  per  cent ; 

(g)  When  its  net  earnings  exceed  30  per  cent  of  its  gross 
earnings  but  do  not  exceed  35  per  cent —  21/2  per  cent; 

(h)  When  its  net  earnings  exceed  35  per  cent  of  its  gross 
earnings  but  do  not  exceed  40  per  cent  —  2%  per  cent; 

(i)  Wlien  its  net  earnings  exceed  40  per  cent  of  its  gross  earn- 
ings —  3  per  cent. 

§  207-d.  Computation  of  earnings,  (a)  In  case  the  company 
carries  on  a  public  utility  business  wholly  within  the  state,  the 
total  gross  and  net  earnings  shall  be  the  basis  for  tlie  tax. 

(b)  In  case  the  company  carries  on  a  public  utility  business 
within  the  state,  partly  or  wholly  in  interstate  and/or  foreign 
commerce,  the  basis  for  the  tax  shall  be  in  the  follomng  ratio  of 
the  total  gross  and  net  earnings : 

(1)  In  the  case  of  a  company  operating  a  railroad  operated  by 
steam  or  other  motive  power  and  either  underground,  surface,  or 
elevated,  the  ratio  shall  be  that  which  the  number  of  miles,  includ- 
ing yard  tracks,  sidings,  branches  and  spurs  operated  within  the 


\ 


i 


L 


,1 


s. 


374 

state  on  December  31  of  the  tax  year  bears  to  the  total  number 
of  such  miles  operated  by  the  company  l>oth  within  and  without 
the  state  on  such  day. 

(2)  In  the  case  of  a  company  not  operating  a  raili-oad  but 
operating  cars  or  other  vehicles,  the  ratio  shall  be  that  which  the 
number  of  miles  run  by  the  ears  or  other  vehicles  of  such  com- 
pany within  the  state  during  the  tax  year  bears  to  the  total  num- 
ber of  miles  run  by  the  cars  or  other  vehicles  so  operated,  both 
within  and  without  the  state  during  such  year. 

(3)  In  the  case  of  a  company  operating  lines  of  steam  vessels 
or  lines  of  other  vessels,  including  barges  or  canal  boats,  the  ratio 
shall  be  that  which  the  number  of  passengers  and/or  the  number 
of  tons  of  freight  embarked  on  board  the  vessels  of  such  company 
within  the  state  of  Xew  York  during  the  tax  year  bears  to  the 
total  number  of  passengers  and/or  tons  of  freight  embarked  both 
within  and  without  the  state  during  such  year. 

(4)  In  the  case  of  a  company  operating  a  telephone,  telegraph 
or  cable  line,  except  as  otherwise  provided,  the  ratio  shall  be  that 
which  the  total  number  of  miles  of  wire  operated  by  such  com- 
pany within  the  state  on  December  31  of  the  year  bears  to  the 
total  number  of  such  miles  of  wire  operated  within  and  without 
the  state  on  such  day,  except  in  case  of  a  company  operating  tele- 
phone systems  whose  principal  business  is  the  operation  of  tele- 
phone exchanges,  in  which  case  the  basis  shall  be  the  ratio  be- 
tween the  number  of  telephonic  instruments  operated  for  hire 
within  this  state  on  December  31  of  the  tax  year  and  the  total 
number  of  such  instruments  so  operated,  both  within  and  without 
the  state  on  such  day. 

(5)  In  the  case  of  a  company  operating  steam  heating,  water, 
gas,  electric  light,  power  or  supply  systems,  or  pipe  lines  for 
water,  gas,  or  oil,  the  basis  shall  be  the  proportion  which  the 
total  mileage  of  wire  or  lines  of  pipe  operated  within  the  state 
during  the  taxable  year  bears  to  the  total  mileage  operated  both 
within  and  without  the  state  during  such  year. 

(6)  In  the  case  of  a  corporation,  joint  stock  company  or  asso- 
ciation not  operating  a  railroad  and  leasing  cars  to  a  company 
operating  a  railroad  or  car  line,  the  ratio  shall  be  that  which  tht 
number  of  car  miles  run  by  the  cars  of  such  company  by  whom- 


375 

soever  operated  within  the  state  during  the  tax  year  bears  to  the 
total  number  of  car  miles  run  by  such  cars  so  operated,  bctli 
within  and  without  the  state  durino^  such  vear. 

(7)  In  the  case  of  a  company  operating  a  maritime  cable  or 
wireless  svstem  the  ratio  shall  be  that  which  the  numl^er  of  mes- 
sages  accepted  in  the  state  of  New  York  during  the  tax  year 
bears  to  the  total  number  of  messages  accepted  both  within  and 
without  the  state  during  such  year. 

§  207-e.  Modification  of  computation.  Any  company  subject 
to  the  tax  imposed  by  this  article  and  carrying  on  a  public  utility 
business  partly  or  wholly  in  interstate  or  foreign  commerce,  may 
petition  the  commission  at  or  before  the  time  when  its  report  is 
due,  to  fix  the  ratio  of  its  gross  and  net  earnings  on  a  basis  differ- 
ing from  that  provided  in  this  article.  Such  company  shall  file 
a  statement,  supplementary  to  its  return,  showing  the  business 
done  and  the  value  of  property  used  in  the  business  both  within 
and  without  the  state,  and  any  other  pertinent  consideration. 
The  commission  may  require  further  information  or  may  pro- 
ceed as  in  case  of  an  unsatisfactory  report  and  shall,  after  a  hear 
ing  of  whieh  the  company  shall  have  at  least  five  days'  notice  and 
at  which  it  may  appear  in  person  or  by  counsel  and  present  argu- 
ments, determine  the  ratio  of  total  gross  and  net  earnings  reason- 
ably attributable  to  the  value  of  the  property  as  a  going  concern 
within  the  state,  ^x  the  tax  and  notify  the  operating  company. 
N^otice  shall  be  contained  in  an  envelope  addressed  to  the  post- 
office  address  of  the  company.  The  tax  shall  be  due  and  payable 
at  once,  if  the  notice  be  mailed  subsequent  to  the  date  on  which 
the  tax  would  have  been  payable  had  the  company  not  petitioned, 
otherwise  on  such  date,  and  interest  upon  the  total  amount  found 
due  to  the  state  on  the  account  stated  for  taxes,  interest  and 
other  charges  shall  begin  with  the  expiration  of  thirty  days,  after 
the  tax  is  due  until  payment  shall  be  made,  and  shall  be  added 
thereto  and  collected  therewith. 

§  207-f.  Independent  units.  A  company  doing  business  both 
within  and  without  the  state  may  segregate  the  gross  and  net 
earnings  from  a  public  utility  substantially  wholly  within  the 
state  and  such  earnings  shall  be  its  gross  and  net  earnings  if  such 
public  utility  is  operated  separate  and  apart  from  other  public 


f 


jj 


I 


376 

utilities  operated  without  the  state  or  both  within  and  without 
the  state.  Such  company  must  inchide  in  its  report  a  statement 
of  its  total  gross  and  net  earnings  from  operation  of  the  separate 
public  utility  and  any  other  facts  which  the  Commission  may 
require,  and  the  Commission  shall  determine  whether  the  utility 
is  operated  substantially  wholly  within  the  state.  To  determine 
the  net  earnings  in  such  case  the  Commission  shall  allocate  such 
portion  of  the  general  overhead  and  other  expenses  of  the  operat- 
ing company  as  is  justly  chargeable  to  the  operation  of  the  sepa- 
rate public  utility. 

§  207-g.  Keports  to  commission.  Companies  liable  to  pay  a 
tax  under  this  article  shall  report  to  the  Commission  as  follows, 
in  such  form  as  it  may  requii*e: 

(a)  Every  company  operating  a  transportation  or  transmission 
line  shall,  on  or  before  August  first  in  each  year,  make  a  written 
report  to  the  Tax  Commission  of  its  condition  at  the  close  of  its 
business  on  June  30  preceding,  stating  the  amount  of  its  gross 
and  net  earnings  for  the  year. 

(b)  Every  company  operating  a  water  works,  gas,  electric, 
steam  heating,  lighting  or  power  system  shall,  on  or  before 
December  first  of  each  year,  make  a  written  report  to  the  Tax 
Commission  of  its  condition  at  the  close  of  its  business  on  October 
31st  preceding,  stating  the  amount  of  its  gross  earnings  and  net 
earnings  for  the  year. 

Section  207-h.  Consolidated  return.  If  a  company  owns  sub- 
stantially all  the  stock  of  one  or  more  other  companies  and  if 
the  public  utilities  directly  operated  by  it  and  those  operate! 
through  such  other  companies,  are  operated  as  a  system,  it  may 
file  with  its  report  a  consolidated  report  for  itself  and  such  other 
companies  in  such  form  as  the  Commission  shall  require,  contain- 
ing a  statement  of  the  gross  and  net  earnings  of  the  system  and 
such  other  information  as  the  Commission  may  require,  and  peti- 
tion the  Commission  that  it  be  deemed  the  company  operating 
such  system  as  a  single  public  utility.  If  the  Commission  finds 
that  the  petition  is  true  it  shall  approve  it,  and  all  deductions 
which  could  have  been  made  by  any  of  the  companies  so  included 
shall  be  allowed  to  the  company  paying  the  tax.  There  shall  be 
the  same  exemption  from  taxation  in  favor  of  the  subsidiary  com- 


L^ 


377 

panics  in  such  case  as  if  such  subsidiary  companies  had  them- 
selves paid  a  tax  under  this  article.     This  section  shall   applv 
only  to  companies  operating  substantially  wholly  within  the  state 
and  shall  not  excuse  any  company  from  making  a  report. 
Section    207-i.    Payment    of    tax    and    penalty    for    failure. 

(a)  The  tax  imposed  on  companies  operating  transportation 
and  transmission  lines  shall  be  due  and  payable  into  the  state 
treasury  on  or  before  the  first  day  of  August  in  each  year. 

(b)  The  tax  imposed  upon  companies  operating  water  works, 
gas,  electric  or  steam  heating,  lighting  or  power  systems  shall  be 
due  and  payable  into  the  state  treasury  on  or  before  the  fifteenth 
day  of  Januai-y  in  each  year. 

(c)  If  such  tax  in  any  case  is  not  paid  within  thirty  days 
after  it  becomes  due,  or  if  the  report  of  any  company  is  not  mad*/ 
within  the  time  required  by  this  article,  the  company  liable  to 
pay  the  tax  shall  pay  into  the  state  treasury  in  addition  to  the 
amount  of  such  tax,  a  sum  equal  to  five  per  centum  thereof,  and 
one  per  centum  addition  for  each  month  the  tax  remains  unpaid, 
which  sum  shall  be  added  to  the  tax  and  paid  or  collected 
therewith. 

(d)  Every  company  failing  to  make  the  annual  report  required 
by  this  article,  or  failing  to  make  any  special  report  required 
by  the  commission,  within  any  reasonable  time  to  be  specified  by 
the  commission,  shall  forfeit  to  the  people  of  the  state  the  sum 
of  ten  dollars  for  each  day  that  such  failure  continues.  Such 
tax  shall  be  a  lien  ujx)n  and  bind  all  the  real  and  personal  prop- 
erty of  the  company  liable  to  pay  the  same  from  the  time  when  it 
is  payable  until  the  same  is  paid  in  full. 

Section  207-j.  In  lieu  of  other  taxes.  The  tax  under  this 
article  shall  be  in  lieu  of  all  other  taxes  upon  the  company, 
except  taxes  or  assessments  upon  its  real  estate  and  on  special 
franchise,  but  the  tax  imposed  by  this  article  shall  not  be  in 
addition  to  any  tax  paid  on  a  special  franchise,  and  any  tax  on 
special  franchise  due  and  paid  during  the  twelve  months  pre- 
ceding the  date  on  which  the  tax  provided  by  this  article  is  due, 
shall  be  deducted  from  the  amount  of  such  tax.  If  the  special 
franchise  tax  has  not  been  paid  because  of  an  appeal  from  the 
Tax  Commission,  the  amount  assessed  shall  be  allowed  as  a 


(• 


378 

deduction  and  when  the  special  franchise  tax  is  finally  paid  the 
Tax  Commission  shall  make  an  adjustment  of  the  difference  be- 
tween such  payment  and  the  amount  assessed  and  the  company 
shall  thereupon  be  entitled  to  credit  upon  the  books  of  the  comp- 
troller for  the  amount  of  any  excess  in  the  amount  paid.     Such 
credit  may  be  assigned  by  the  company  in  whose  favor  it  is 
allowed  to  a  company  liable  to  pay  taxes  under  this  article,  and 
the  assignee  of  the  whole  or  any  part  of  such  credit  on  filing  with 
the  commission  such  assignment  shall  thereupon  be  entitled  to 
credit  upon  the  books  of  the  Tax  Commission  for  the  amount 
thereof  on  the  current  account  for  taxes  of  such  assignee  in  the 
same  way   and  with  the  same  effect   as  though  the  credit  had 
originally   been   allowed   in   favor   of   such   assignee.      If.  from 
such  reassessment  it  appears  that  an  additional  tax  is  due  from 
such  company  for  such  year,  such  company  shall,  within  thirty 
days  after  notice  has  been  given  as  provided  in  section  207-e  of 
this  chapter  by  the  Tax  Commission,  pay  such  additional  tax. 

Section  207-k.  Application  of  sections  of  article  nine.  Sections 
one  hundred  and  ninety-four,  one  hundred  and  ninety-five,  one 
hundred  and  ninety-eight,  one  hundred  and  ninety-nine,  tw^o  hun- 
dreil,  two  hundred  and  one,  two  hundred  and  two,  two  hundred 
and  three,  two  hundred  and  six,  and  two  hundred  and  seven  of 
this  chapter  shall  apply  to  the  taxes  imposed  by  this  article,  so 

far  as  applicable. 

Section  207-1.  Unconstitutionality.  The  legislature  declares  it 
to  be  its  intention  that  if  any  provision  of  this  act,  or  the  applica- 
tion thereof  to  any  company  or  circumstances,  be  held  invalid: 
(a)  The  remainder  of  the  act,  and  the  application  of  such  pro- 
vision to  other  companies  or  circumstances,  shall  not  be  affected 
thereby;  and  (b)  Wherever  necessary  as  a  result  of  such  decision, 
the  tax  on  any  company  shall  be  reassessed  by  the  Commission 
and  the  company  shall  have  the  same  rights  as  in  case  of  an 
original  assessment,  and  the  taxes  shall  be  due  as  provided  in 
sections  195  and  196  of  the  Tax  Law. 

Section  n.  Acts  repealed.  Sections  184,  185  and  186  of  such 
chapter  and  all  other  acts  or  parts  of  acts  in  conflict  herewith  are 

hereby  repealed. 

Section  4.  Section  one  hundred  and  ninety-two  of  such  chapter 

is  amended  to  read  as  follows : 


4 
^ 


379 

§  192.  Reports  of  corporations.     Corporations  liable  to  pay  a 
tax  under  this  article  shall  report  as  follows: 

1.  Corporations  paying  franchise.  Eveiy  corporation,  associa- 
tion or  joint-stock  company  liable  to  pay  a  tax  under  section  one 
hundred  and  eighty-two  of  this  chapter  shall,  Ixitween  the  first 
day  of  November  and  the  fifteenth  day  of  December  in  each  year, 
make  a  written  report  to  the  tax  commission  of  its  condition  at 
the  close  of  its  business  on  October  thirty-first  preceding,  stating 
the  amount  of  its  authorized  capital  stock,  the  amount  of  stock 
paid  in,  the  date  and  rate  per  centum  of  each  dividend  declared 
by  it  during  the  year  ending  with  such  day,  the  entire  amount  of 
the  capital  of  such  corporation,  and  the  capital  employed  by  it  in 
this  state  during  such  year.  Upon  written  application  the  State 
Tax  Commission  may,  in  its  discretion,  extend  the  time  in  which 
to  make  report,  but  not  beyond  the  fifteenth  day  of  February 
succeeding. 

[2.  Transportation  and  transmission  corporations.  Every 
transportation  or  transmission  corporation,  joint-stock  company 
or  association  liable  to  pay  an  additional  tax  under  section  one 
hundred  and  eighty-four  of  this  chapter,  shall  also,  on  or  before 
August  first  in  each  year,  make  a  written  report  to  the  tax  com- 
mission of  its  condition  at  the  close  of  its  business  on  June 
thirtieth  preceding,  stating  the  amount  of  its  gross  earnings 
from  all  sources  and  the  amount  of  its  gross  earnings  from  its 
transportation  or  transmission  business  originating  and  terminat- 
ing within  this  state. 

[3.  Elevated  and  surface  railroad  corporations.  Every  cor- 
[X)ration,  joint-stock  company  or  association  liable  to  pay  a  tax 
under  section  one  hundred  and  eighty-five  of  this  chapter  shall, 
on  or  before  August  first  of  each  year,  make  a  written  report  to 
the  tax  commission  of  its  conditions  at  the  close  of  its  business  on 
June  thirtieth  preceding,  stating  the  amount  of  its  gross  earn- 
ings from  business  done  in  this  state,  the  amount  of  dividends 
of  every  nature  declared  or  paid  during  the  year  ending  June 
thirtieth,  the  authorized  capital  of  tlic  company  and  the  amount 
of  capital  stock  actually  issued  and  outstanding. 

[4.  Water-works,  gas,  electric,  steam-heating,  lighting  and 
power  corporations.     Every  corporation,  joint-stock  company  or 


i 


V 


380 

association  liable  to  pay  a  tax  under  section  one  hundred  and 
eighty-six  of  this  chapter,  shall,  on  or  before  December  first  of 
each  year,  make  a  written  report  to  the  tax  commission  of  its  con- 
dition at  the  close  of  its  business  on  October  thirty-first  preced- 
ing, stating  the  amount  of  its  gross  earnings  from  business  done 
in  this  state,  the  amount  of  dividends  of  every  nature  declared  or 
paid  during  the  year  ending  with  October  thirty-first,  the  author- 
ized capital  of  the  company  and  the  amount  of  capital  stock 
actually  issued  and  outstanding.] 

[5.]  2.  Insurance  corporations.  Every-  insurance  corporation 
liable  to  pay  a  tax  under  section  one  hundred  and  eighty-seven 
of  this  chapter,  shall,  on  or  before  March  first  in  each  year,  make 
a  written  report  to  the  tax  commission  of  its  condition  at  the  close 
of  its  business  on  December  thirty-first  preceding,  stating  the 
gross  amount  of  all  premiums  referred  to  in  section  one  hundred 
and  eighty-seven  of  this  chapter,  received  during  the  preceding 
calendar  year  on  business  done  thereby  in  this  state  during  the 
year  ending  with  such  day  and  at  all  times  prior  thereto,  whether 
the  premiums  were  in  money  or  in  the  form  of  notes,  credits  or 
other  substitutes  for  money. 

[6]  3.  Foreign  bankers.  Every  foreign  banker  liable  to  pay 
a  tax  under  section  one  hundred  and  ninety-one  of  this  chapter 
sliall,  on  or  before  February  first  in  each  year,  make  a  written 
report  to  the  tax  commission  of  the  condition  of  his  business  on 
December  thirty-first  preceding,  stating  the  amount  of  tax  for 
which  he  is  liable  under  this  article,  and  giving  in  detail  the 
facts  required  by  the  last  preceding  section  for  the  purpose  of 
ascertaining  and  computing  the  same. 

[7]  4.  Trust  companies.  Every  company  liable  to  pay  a  tax 
under  section  one  hundred  and  eighty-eight  of  this  chapter  shall, 
on  or  before  August  first  in  each  year,  make  a  written  report  to 
the  tax  commission  of  its  condition  at  the  close  of  business  on 
June  thirtieth  preceding,  separately  stating  the  amount  of  its 
capital  stock,  the  amount  of  its  surplus,  and  the  amount  of  its 
undivided  profits,  and  containing  such  other  data,  information 
or  matter  as  the  tax  commission  may  require. 

[8J  5.  Savings  banks.  Every  savings  bank  liable  to  pay  a  tax 
under  section  one  hundred  and  eighty-nine  of  this  chapter,  shall 


^ 


t 


i. 


*> 


» 


V 


./ 


381 

on  or  before  August  first  in  each  year,  make  a  written  report  to 
the  tax  commission  of  its  condition  at  the  close  of  business  on 
June  thirtieth  preceding,  stating  the  par  value  of  its  surplus, 
and  undivided  earnings  and  containing  such  other  data,  informa- 
tion or  matter  as  the  tax  commission  may  require. 

[9]  6.  Investment  companies.  Every  investment  company 
liable  to  pay  a  tax  under  section  one  hundred  and  eighty-eight-a 
of  this  chapter  shall,  on  or  before  August  first  in  each  year,  make 
a  written  report  to  the  tax  commission  of  its  condition  at  the 
close  of  business  on  June  thirtieth  preceding,  separately  stating 
the  amount  of  its  capital  stock,  the  amount  of  its  surplus,  and 
the  amount  of  its  undivided  profits,  and  containing  such  other 
data,  information  or  matter  as  the  tax  commission  may  require. 

Section  5.  Section  one  hundred  and  ninety-seven  of  such  chap- 
ter is  herebv  amended  to  read  as  follows: 

Section  197.  Payment  of  tax  and  penalty  for  failure.  A 
tax  imposed  by  section  one  hundred  and  eighty-two  [or  one  hun- 
dred and  eighty-six]  of  this  chapter  shall  be  due  and  payable 
into  the  state  treasury  on  or  before  the  fifteenth  day  of  January 
in  each  year.  [A  tax  imposed  by  section  one  hundred  and  eighty- 
four  of  this  chapter  on  a  transportation  or  transmission  corpora- 
tion, or  by  section  one  hundred  and  eighty-five,  on  elevated  rail- 
roads or  surface  railroads  not  operated  by  steam,  shall  be  due 
and  payable  into  the  state  treasury  on  or  before  the  first  day  of 
August  in  each  year.]  A  tax  imposed  by  section  one  hundrefl 
and  eighty-seven  of  this  chapter  on  an  insurance  corporation  shall 
be  due  and  payable  into  the  state  treasury  on  or  before  the  first 
day  of  June  in  each  year.  A  tax  imposed  by  section  one  hundred 
and  eighty-eight,  one  hundred  and  eighty-eight-a  or  one  hundred 
and  eighty-nine  shall  be  due  and  payable  into  the  state  treasury 
on  or  before  the  first  day  of  September  in  each  year.  A  tax 
imposed  by  section  one  hundred  and  ninety-one  of  this  chapter 
on  a  foreign  banker  shall  be  due  and  payable  into  the  state  ti'eas- 
ury  on  or  before  February  first  in  each  year.  If  such  tax  in  any 
case  is  not  paid  within  thirty  days  after  the  same  becomes  due, 
or  if  the  report  of  any  such  corporation  is  not  made  within  the 
time  required  by  this  article,  the  corporation,  association,  joint- 
stock  company,  person  or  partnership,  liable  to  pay  the  tax,  shall 
pay  into  the  state  treasury  in  addition  to  the  amount  of  such 


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382 

tax  a  sum  equal  to  live  per  centum  thereof,  and  one  per  centum 
additional  for  each  month  the  tax  remains  unpaid,  which  sum 
shall  be  added  to  the  tax  and  paid  or  collected  theiiewith.  Eveiy 
corporation,  association,  joint-stock  company,  person  or  partner- 
ship failing  to  make  the  annual  report  required  by  this  article,  or 
failing  to  make  any  special  report  required  by  the  commission, 
within  any  reasonable  time  to  be  specified  by  the  commission, 
shall  forfeit  to  the  people  of  the  state  the  sum  of  one  hundred 
dollars  for  every  such  failure,  and  the  additional  sum  of  ten 
dollars  for  each  day  that  such  failure  continues.  Such  tax  shall 
be  a  lien  upon  and  bind  all  the  real  and  personal  property  of  the 
corporation,  joint-stock  company  or  association  liable  to  pay  the 
same  from  the  time  when  it  is  payable  until  the  same  is  paid 

in  full. 

Section  6.  This  act  shall  take  effect  immediately. 


PROPOSED     CONSTITUTIONAL     AMENDMENT 
REGARDING  DEBT  LIMITATION 

Concurrent  Resolution  of  the  Senate  and  Assembly 
Proposing   an   amendment  to   article   eight   of  the  constitution, 

in  relation  to  limitation  of  indebtedness  of  cities  and  counties. 

Section  1.  Resolved  (if  the  Assembly  concur).  That  article 
eight  of  the  constitution  be  amended  by  inserting  therein  a  new 
section,  to  be  section  ten-a,  to  read  as  follows: 

§  10-a.  The  debt  limitation  of  a  city  or  county,  or  the  limita- 
tion on  the  amount  which  the  city  or  county  is  authorized  to  raise 
annually  for  city  or  county  purposes,  as  prescribed  by  section  ten 
of  this  article,  shall  not  be  affected  by  reason  of  a  change  in  the 
system  of  taxation  or  in  the  definition  of  real  estate  or  real  prop- 
erty, whereby  real  estate  then  subject  to  taxation  in  such  city  or 
county  shall  be  exempted  from  taxation  or  be  taxed  otherwise 
than  on  its  assessment-rolls ;  but  the  valuation  of  such  real  estate 
as  it  last  appeared  on  such  assessment-rolls  shall  continue  to  be  a 
part  of  the  base  on  which  the  debt  limitation,  or  on  which  the 
limitation  on  the  amount  which  the  city  or  county  is  authorized 
to  raise  annually  for  city  or  county  purposes,  shall  be  calculated. 
The  legislature  in  its  discretion  may  confer  appropriate  juris- 
diction on  the  appellate  divisions  in  the  several  judicial  depart- 


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383 

ments  for  the  purpose  of  determining  the  real  estate  In  any  city 
or  viHage,  which  is  so  exemi>ted  or  otherwise  taxal,  and  the  value 

thereof. 

§  2.  Resolved  (if  the  Assembly  concur).  That  the  foregoing 
amendment  be  referred  to  the  legislature  to  be  chosen  at  the  next 
general  election  of  senators,  and  in  conformity  with  section  one 
of  article  fourteen  of  the  constitution  be  published  for  three 
months  previous  to  the  time  of  such  election. 


PROPOSED     CONSTITUTIONAL     AMENDMENT     RE- 
GARDING THE  TAXATION  OF  PUBLIC  UTILITTKS 

Concurrent  Resolution  of  the  Senate  and  Assembly 

Proposing  an  amendment  to  section  two  of  article  ten  of  the 

constitution,    in    relation   to    the   taxation    of   public    service 

corporations. 

Section  1.  Resolved  (if  the  Assembly  concur).  That  section  two 
of  article  ten  of  the  constitution  be  amended  to  read  as  follows: 

§  2.  All  county  officers  whose  election  or  appointment  is  not 
provided  for  by  this  constitution,  shall  be  elected  by  the  electors 
of  the  respective  counties  or  appointed  by  the  boards  of  super- 
visors, or  other  county  authorities,  as  the  legislature  shall  direct. 
All  city,  town  and  village  officers,  whose  election  or  appointment 
is  not  provided  for  by  this  constitution,  shall  be  elected  by  the 
electors  of  such  cities,  towns  and  villages,  or  of  some  division 
thereof,  or  appointed  by  such  authorities  thereof,  as  the  legisla- 
ture shall  designate  for  that  purpose.    All  other  officers,  whose 
election  or  appointment  is  not  provided  for  by  this  constitution, 
and  all  officers,  whose  offices  may  hereafter  be  created  by  law, 
shall  be  elected  by  the  people,  or  appointed  as  the  legislature  may 
direct.    Nothing  in  this  section  or  elsewhere  in  this  constitution 
shall  he  held  to  prevent  the  legislature  from  providing  by  gen- 
eral law  hoiu  public  service  corporations,  and  the  property  of  such 
corporations,  shall  be  taxed  and  how  such  taxes  shall  he  collected. 
§  2.  Resolved  (if  the  Assembly  concur),  That  the  foregoing 
amendment  be  referred  to  the  legislature  to  be  chosen  at  the  next 
general  election  of  senators,  and  in  conformity  with  section  one 
of  article  fourteen   of  the  constitution   be   published   for   three 
months  previous  to  the  time  of  such  election. 


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